Test Results from China, Super Kids or Rigged?

The PISA scores came out and the kids in Shanghai outscored everyone.  Now before you get all excited, there are some things that still raise a red flag.  I am willing to say these kids are good if the follow up data proves it.  But with the record of China on many things, I want to see the results in full first.

 

Out of a city of 20 million people, 15,000 students took the PISA, which is an international standardized test.  Now the kids are suppose to be a cross section, so some smart kids and some kids who would rather be playing video games, are suppose to take the test.  Those of us who have done business with China, know how much the Chinese love to prost big numbers to look impressive.  We also know they love to save face and if that means bending the rules, they will bend the rules.  And this is where I have an issue with the test.

 

I would love to see the background on the students to ensure they truly are a cross section of the student population.  If not, then we have a problem.  China is left to pick the students so I really do wonder if someone decided to stack the deck.  I’ve seen this so often in business and government works projects with China, why not in education!  So I am not buying these test numbers until real data on the backgrounds of the students, is published or we get third party results demonstrating this was legit.

Black Friday 2010, In Minnesota

If you followed my old blog, you know that I go out for black Friday, not to actually do shopping but to see what it’s like.  As a marketer, I find it interesting to see how people behave on black Friday.  So this year, I braved the cold to see what black Friday was like.

 

I woke up at 3:30am, not that I was asleep, I ate way too much on Thanksgiving day and I don’t like to sleep with a full stomach.  So, I was pretty much awake.  I got dressed and went out into the dark of night.  It was 11F outside, I was wearing layers of clothing to stay warm, but still my fingers were freezing.  It normally isn’t this cold so early in the season, 20-30F maybe but this was unreal.  I didn’t look forward to waiting in the cold outside, something I was expecting.  There were few cars on the road, but as I neared the mall, I saw more.  The parking lot looked half full in some parts and totally empty in others.

 

I drove up to JC Penney and saw that there were few cars near the main entrance so I parked there.  They had opened early, no doubt in compassion for the people who waited to get in who had endured the almost single digit temperatures.  They were scheduled to open at 4am and at 3:50am, when I showed up, they were open already.  The line for Target was long, not yet open, the line stretched along the side of the building.  So I decided I would go to Target after the store opened to see what the crowd was there for.

 

I entered JC Penney and found it was very easy to get around, no lines, no problems.  I picked up a scarf for one of my sisters, knowing that she likes scarves plus it was a good deal.  I was surprised at the lack of people in the store.  There were only two people in front of me when I went to check out.  At that point, I decided to head into the mall to see what was going on.

 

The mall had half the stores open and few people in any of them.  I walked over toward Sears, on my way, I have to pass the food court.  The smell of pizza was coming from the food court, I thought, they can’t be serving pizza at this hour could they?  I thought perhaps it was just the smell of the pizza place permeating throughout the mall.  But no, as I past, it was open and it had a line.  It made sense, nobody else was serving food.

 

Sears was pretty quiet, the sales people were standing around chatting, they didn’t have anyone to help, same at Kohl’s.  At Target, I first thought it must be a mad house!  The entrance was packed with people.  The nice leisurely shopping I had been experience was gone.  Bodies slamming into one another, elbows flying and carts being used and passive aggressive battering rams.  I thought I had found the madness of black Friday, but no, I had just found poor logistics.  What Target had done is put the entertainment, toys and electronics so close to each other and near the entrance that the crowd swarmed that area.  Once I passed that area, it was smooth sailing.  At this point, I decided to leave the mall.

 

I headed out to see what the stand alone stores were like.  Although the lines on the outside looked long, once they poured into the store, it didn’t look anymore full than your typical Saturday afternoon.  So I left for home.  Later in the day around 10am, I ventured back out.  Again, the crowds looked only slightly more than your typical Saturday at the mall.  In fact of the three stores I went to, I only had to wait in line at one, which is actually quite common even on a weekday at that store.  The others had no lines.

 

My black Friday experience was very uneventful.  Gone were the craziness of the past, where it seemed almost like a warzone at times.  Where you waited in line bored, only to be broken by the sudden rush and chaotic frenzy of the first 1 minute of shopping where the really good deals are taken.  Even at Target, where I showed up a half hour after the store opened, the TV’s that were on deep discount, they still had four of them unclaimed.  In past years, that was unheard of.

 

Now that it is Monday and I’ve had a chance to look at the sales figures for last Friday, I have seen that overall, there was an uptick from last year, but nowhere near the levels of pre 2009 levels.  In my part of the country, sales were basically flat.  There are a number of factors involved in that.  Black Friday was an unusually cold day here, 11F at the end of November is unusual and probably kept some people home who preferred to shop online.  Also, online retailers were far more aggressive this year and the numbers show a double digit increase in web traffic this year.  Add to that, some retailers had pre-Thanksgiving day sales which might have helped thin the crowds at bit.  I think we will have an ok holiday season in terms of sales, but consumers are still not opening up their wallets like in the past.

Junk Science and the Fed

So by now you have heard the fed is buying debt, something they swore they would never do under oath.  I doubt the fed will be hauled to jail for lying under oath like congress threatened to do to baseball players.  The Fed claimed they wanted to improve asset values, ok, that hasn’t work nor has it ever worked.  So what’s the deal?

 

Everyone with a clue knows what the Fed is doing is wrong.  They are really out to destroy the dollar.  The dollar only has value as long as people have faith in it, and what the Fed is doing is destroying faith in the dollar so the dollar is going down.  With it, will go the savings of every American.  If you are close to retirement, you might want to think again about how close you really are.  It just got a lot further away, curtsey of the Fed.

 

The Fed says they want to raise asset values so people feel rich because rich people spend money and since we don’t make anything, we need to drive our economy by spending.  The second aspect that doesn’t get so much play is that the administration wants to compete globally with the likes of China, by weakening our currency.  Both are rather stupid moves as Obama is finding out in his talks to the G20.  The dollar is the world currency, you don’t destroy the standard currency.  But Obama is a friend of Soros who does want to destroy the dollar so you can make your own conclusions as to why he is doing this.  Either way, if you bought his slogan of hope and change, I’m sure you will be doing a lot of hoping and wishing for changed rather quickly.  We should be cutting federal spending, not raising the debt to even higher levels.  But that’s not something he’s serious about because the area where we have a massive unfunded liability is in the federal workers pension system.  If you really wanted to control the debt, you will have to cut the benefits to federal workers upon their retirement and that’s not something he is going to do.

 

What we need is a strong dollar, not a weak dollar to stimulate the economy.  Our economy is mainly run on consumption and out of a nation of 300 million only 12 million actually make something in a factory.  The rest of the population is trying to sell services and lattes.  So until we have a strong manufacturing base again, a strong dollar is key to a strong economy.  Here’s why… of the things we manufacture, we import the vast majority of the raw goods that go into producing those manufactured goods.  Cheap raw goods allows us to create inexpensive finished goods to sell around the world.  But if we weaken our dollar, the raw goods will cost more and so will the finished goods.  Then our economy is shot because Americans won’t be able to buy the foreign or domestically produced goods because both will be too expensive.

 

The second reason for a strong dollar goes back to the fact we are consumers for the world.  The world still needs us to buy cheap junk from China, expensive wines from France, chocolate from Switzerland and coffee from Latin America.  When these goods are cheap, we buy more and this helps us at home by providing more services jobs as well has helps the rest of the world have money to buy what little we do make.

 

The Fed needs stop what it is doing now and Obama needs to tackle the hard issue of controlling spending.  We don’t have a tax shortage, we have an excess of expending.  If he went after the unfunded liability and got them under control, he could actually be the greatest president in a generation because even though his union friends would hate him, he would have saved the economy for the next 20 plus years.   But don’t count on him coming to this conclusion anytime soon.

Vote for Capitalism

Tomorrow is election day here in the US, every citizen needs to decide on whom they will vote for, from city council to national offices.  Like most Americans, I never really cared much for politics.  I paid attention at election time so I could make informed voting decisions but that was about it.  I figured they couldn’t screw up that much, they being the politicians.  But over the last 4 years, I’ve learned, yes, they really can screw it up that bad!  That’s why we need to go back to real free market principles that make America the power house we love to think of it as.

 

I’m not going to tell you who to vote for, that’s your job to go and educate yourself.  In my own education process, I have learned a few things that might help you in your education process as well.  Often in the media you hear about how capitalism has failed, many socialist and communist say this.  But that actually isn’t true.  Since 1929, we have been practicing socialism light.  John Maynard Keynes created a theory of controlled economies.  We adopted that theory as our own and except for Reagan, every president we’ve had since 1929, has bought into this controlled economy concept.  A controlled economy is not capitalism, when you hear people say that capitalism has failed, no it didn’t, socialism light failed.

 

So now we have the options, do we move on to full socialism which eventually leads to full on communism or as many in the media like to call it, statism, or do we go back to what has worked in the past, capitalism?  I know, someone will say, “but wall street is full of capitalist and they got us into this mess.”  Wall Street is not full of capitalist because Wall Street exists in a controlled environment, a highly regulated environment that doesn’t support free market principles.  If it did, we would have had new investment banks popping up all the time and new methods used that would have allowed us more options, but we didn’t because regulations prevented new competition from entering the market, they are socialist, not capitalist, they are regulated to make money without real competition.  If you really want to see how good these guys on Wall Street are, take away the regulations that prevent competition and you’ll see how they are not very smart.  Look, anyone can make money in a rigged game, as long as you know how the game is rigged.

 

The reason we moved away from capitalism is to avoid the ups and downs that are natural cycles of free markets.  But as we have seen, controlled economies can’t stop that either.  China still is forced to bend to market forces too.  But we have reached a point where we have regulated ourselves into a position where the tools that allowed us to get out of recessions in the past, are not able to do their job.  The thing is, you cannot force out natural cycles of economies.  For example, I go to the supermarket to shop for my food once a week and spend around $100.  The supermarket may complain that they are hurting on Tuesday because I am not buying and spending $100 on Tuesday.  To force me to shop everyday and spend $100 everyday would soon cause me to run out of money.  A better method would be for the supermarket to spend some money on monitoring economic trends to understand the buying habits of the consumers and then creating a strategy that helps them thrive when I don’t feel like shopping or creating marketing programs that entice me to go shopping more often for more things.  That’s capitalism at work!

 

We have far better tools to allow capitalism to flourish and to weather the economic downturns today.  But we have a political system that doesn’t want to let go of the control to allow capitalism to thrive.  True capitalism is economic freedom for you the individual.  A controlled economy is forced restrictions on your freedoms.  That’s the choice you have this Tuesday.

Even Famous People Love Chocolate

Someone asked me, why would anyone want to read about what they think via twitter or a blog? My answer was, “even famous people love chocolate.” You don’t have to write about deep thought issues, you have to write about topics that people want to know about and there are plenty of people who love chocolate and would love to hear about the latest chocolate delight. That’s how social media works.

If you are looking for a job or looking to connect with your customers, social media is a great tool. If you haven’t been into it in the last 5 years, you are behind the times and need to catch up. I’m already looking at is next and playing with the latest tools. Those tools have social media as a foundation, so it helps to have that basic social media knowledge. But people are always wondering, what do people want to see?

It’s important to focus on what your passion is about. I would hope you are working in an area you have a passion for and I will assume you do. Often that’s what people want to talk about. I know someone who loves to talk about hearing protection devices. It’s his passion and he blogs about it and gets lots of traffic to his blog because that’s all he focuses on. I for one have a passion for international business practices and the Austrian school of Economics during the interwar years. I write a lot on these two topics and people find them of interest.

If you focus on your passion and that passion is in line with your goals for using blogging, then you will find that person you need to.

Why you Need a Chief Global Officer

By Edward Chenard

10 years ago I wrote an article by the same name, many people liked it back then, but I thought I would revisit the topic again. A lot has changed in ten years and yet the need for a Chief Global Officer is greater than it was a decade ago. If your company does business overseas or has overseas competitors, you do need a chief global officer.

I live in the US right now, most Americans are really good people at heart, they like to play fair and do what’s right and they expect the same in return. In business, many act like boy scouts, work hard, push hard and do your best. The traditional American work ethic plays well to this and many Americans seek to achieve these values. However, that is the very mindset that often gets them in trouble when they go overseas to do business. I am not saying this is the wrong mindset, I am saying that it is not a common mindset in all places around the world. You can certainly find people who have this mindset anywhere on the planet, but that doesn’t mean it is the dominate mindset. When faced with a more competitive mindset that is willing to do things that the American mindset may consider immoral or unethical, it’s weaknesses in spotting those activities of others, hurts the American.

In many industries, the US is no longer the dominate player, thus the ways of other nations play a much larger role and their business practices must be taken into account. Unfortunately for Americans, our media and education system do not prepare us for this new paradigm. This is why the Chinese when negotiating with our delegates, are shocked to see how much they get away with, because we are unprepared. A number of factors such as political correctness, a lack of truly training people to understand the global and local mindsets of many cultures, and the false believe that everyone behaves as we do all contribute to our giving the farm away in many cases. It is why only 1% of imports are inspected, we assume the other countries are going to play nice and ensure the products meet our standards, often they do not.

When an American company goes overseas, they often find it to be a very expensive learning experience. This is because they are taking an American mindset and way of doing things and trying to adapt it to a culture that may see those methods as alien. Also, Americans do not realize that things we may consider unethical, are quite ok in other cultures and when they come to do business here, they will do those things here, even if we don’t. The fact that we don’t do those things, in many cases they see us as weak for not taking advantage of it. Of course not all do, some get our system. All these reasons and more help to explain, why you need a chief global officer, but it’s important to understand what kind of person that is.

Many companies will often hire a foreigner to put in charge of the international efforts. This works sometimes, if that foreigner comes from your target overseas market and has enough time in the US to understand our ways. But, often what happens is, they will have great success in their native market and when asked to replicate those efforts in another market, they fail. Because they are a foreigner to that new market and can’t help you bridge that gap. In my opinion, the best solution is to have a globalist in place. These are people who have the international experience of three or more regions of the world and have the global education as well. Yes, that’s a small group but that’s the group that shows the best promise of helping you. Large companies can often train these people over years, that is, if they stick around long enough to be of value. Often the best bet is to hire one.

I will take the example of myself. I have lived in North America, Europe and Latin America with assignments all over the planets such at the Middle East, Eastern Europe, Central and Far East Asia as well as Africa. I like to say, if there are people there, I’ve done business there. I understand how business is done in China, Russia, France, Afghanistan, etc… That helps a company adjust to the local culture when going in, in essence, doing glocal, having a global strategy, but be able to act locally. I have an MBA and BA in international business, combined with 15 years of experience in doing business; I know how to get things done. I also understand that there are times that, American sensibilities need to take a back seat in order to gain ground in an overseas market. I know how to bridge the cultural divide between the US and many cultures. I know operations, marketing and leadership around the world. In essence, you can drop in me anywhere and get results. That’s not so with a functional personal who may be an expert in marketing and spent 15 years in the US market. They are an expert at US marketing, which doesn’t mean success in China. Sorry guys, but that’s a straight up reality, experience overseas does make a difference.

Having a chief global officer also helps when it comes to domestic business. Many competitors from overseas use business practices unfamiliar to Americans and having someone who knows the methods of competitors can help you. For example, some Chinese companies will send people to take the public tours at companies and then demand to see restricted areas and start claiming racism when not allowed. They know that Americans do not like being called racists and often will break and give in when being called one. In some cultures, it is also seen as a good thing to lie and trick your competitor, if they can take something from you, they see it as a great honor to have tricked you. In the US, that is seen as unethical and often illegal. But that doesn’t mean they will not try these things on you and having someone who knows these tricks, can save you a lot of money. Keep in mind, the believed stat on foreign competitor breaches are, for everyone 1 you hear, there are 10 you didn’t hear about and anywhere from 20-50 more that never even got noticed. There are cases where American companies did the entire R&D and found out later a foreign competitor has stole the R&D and then went to market at a lower price. You don’t want to be that company.

In my opinion, a good chief global officer should have marketing and operations as part of their skill set and a good understanding of cultural practices and competitive intelligence practices around the world. The second two I consider very critical because they are often the hardest to learn. It takes a long time to know many cultures. I spent my entire life learning. When it comes to competitive intelligence, it took years of having great mentors from countries like Israel, Tunisia, France, Germany, etc… to teach me how things are done around the world. Don’t underestimate competitive intelligence, it’s very big with many cultures and often it is the government and the company teaming up against you.

If you want to go global and do it in a way that will save you a lot of money, get a well qualified chief global officer, a very strong one will help you in any market and you save you a lot of headaches when an aggressive competitor targets you.

Creative Destruction and the Cannibalization Rate

Creative destruction became popular in the 90′s and it is still around today. In fact most people don’t call it that anymore, they call it cannibalization, so I thought it would be good to talk about both of them and how they play off each other.

Creative destruction is an idea created by the economist and former finance minister of the Astro-Hungarian empire during WWI, Joseph Schumpeter. Schumpeter later came to the US and wrote books on socialism and capitalism. He was also considered a member of the Austrian school of economics, which few people even know about anymore. But the Austrian school of economics was actually quite vibrant with many great thinkers before WWII.

Schumpeter’s idea of creative destruction was that you can destroy some of your current product to create room for more growth with a new product. Let us take Coke as an example. Once there was just Coca Cola. Then someone decided to create diet Coke. In the process of bringing Diet Coke to market, they did destroy some of the regular Coke sales, but in the process they increased overall sales as Diet Coke allowed them to gain new customers who didn’t want the calories of regular Coke. In its most basic form, that’s creative destruction. But of course you need a good way to measure your creative destruction activities, you don’t want to totally go overboard on it.

Using the cannibalization rate formula, is the easiest way to see your creative destruction activities. You take sales lost from existing products and divide that by sales of new products to give you a percentage of cannibalization. On the surface it’s pretty easy, the trick is to accurately reflect the changes made by the new product versus market forces also impacting sales. So you want to scrub your data very well here to ensure you are not giving credit to your new product when it could be competitive forces or some other external market force that is eating away sales. The issue here is, if some other force is eating away at sales, there is no one formula to tell you this, so you have to do some detective work. And it is that area that separates the good from the also ran.

Using a Brand Development Index

Brand indexing is often associated with a CPG product, competing on the shelves of your local grocery store or big box retailer. But it is actually a great tool to use in the analysis of a financial product or B2B product. All too often, this is an overlooked measurement in many non-CPG companies but it should be used and used often.

Many companies outside of CPG, often find themselves as a commodity, competing on pricing. Focusing on brands and branding efforts, is one way to help counter the commodity trap. For financial services, the general public views your products and the same, the only difference is the company brand. But branding the products would help counter this perception. For B2B manufacturers, price is often a huge factor as that’s how consumers have been trained to think over the 30 years, towards your products. But with the rise of cheap products from China based competitors cutting into your margins, a brand is a way to help set your products apart. But, a brand without a way to measure the impact of the brand, is not a very useful brand. Thus, the brand development index, comes in quite handy.

A company uses a brand development index to measure the performance of a brand within a specific customer segmentation. For example, you may have a product you sell to all 8 classes of trucks in the US but you only want to measure the brand performance within the class 8 truck segmentation, the brand development index can do that. But the full benefit of the brand development index would come in when you measure the brand’s performance in each segmentation. You might discover that the heavy lift class 8 trucks have a stronger brand performance than the regular class 8 truckers, that’s a great way to understand your market. It then allows you to deep dive into this difference further.

You could also splice the market further, let us say you are selling safety glasses in the industrial retailer markets. You can see brand performance by retailer and then break it down by segments. You could even measure brand performance by sales reps. This is actually quite handy because it allows you to track which reps are better at selling which brands. This then allows you to target weak points and find ways to correct them. Of course you would need other analysis tools to really develop this, but the brand development index is a good starting point, it is by no means an end point.

The brand development index is a nice tool to get a quick overview. But to really be impactful, it is just one metric to use in a suite of metrics. Some of these metrics I will write about later.

Is Lack of Faith Part of the Problem?

I was at a recently lunch event in which the local VP for the US Chamber of Commerce gave a presentation. 99% of what he said, I had heard already, so I basically went on with my lunch, until he said an interesting stat that caught my attention. He mentioned in a study they had conducted that for people 35 and younger, 37% had a favorable view of capitalism and the free markets. 33% had a favorable view of socialism. So one third of those under 35 have pretty much no faith in the free markets.

Now I can understand why an uniformed person would bash the free markets, most of those people under 35, have never experienced a free market, yet they are told constantly that they live in a free market. We have controlled capitalism, not true free markets. Yet the media and schools tell them, this is the free market, when a well educated person who knows what a free market looks likes, understands that we have no such thing.

Many of the youth of today are being taught by teachers and professors who have never had to meet a payroll, thus they do not have any real skin in the economic game. An average professor at the University of Minnesota Carlson School of business, makes $194k a year and has a 13.5% matching pension, paid for by you and the state will cover the pension even if it means raiding yours. Many of them have tenure, which means you can’t fire them. Just ask yourself, how well does someone who will never have to experience the risk of their business failing because they have tenure and are paid by the state, how well do they really know capitalism since they never experienced it to the fullest like an entrepreneur does? The answer is simple, they don’t know it! So our kids are taught fake capitalism by fake capitalist. We pay a lot for higher education that in many cases, is a complete waste of money due to a system which promotes people who have never done what they teach! The domino effect is that these people often push theories which sound nice but which fall apart when put to the test of the real world or even their control capitalist system we have.

The free markets work, Hayek proved it, when people do not have faith in the free markets, they are saying have do not believe in freedom. The free markets never failed, they were never given the chance to fail. Our controlled markets failed because you can’t really control the will of the people. That’s the lesson we should be learning but it seems people think that the more control we put in play, the better things will be, when that’s never proven to work!

I really do understand why one third of people under 35 would think socialism is great, they went through school being told that and they believed it, even though all the evidence of history proves it doesn’t work. I think it is up to those of us who do know the free markets are best because it means freedom, we need to educate the others.

China, Second Largest Economy

So I am reading the news today and China is reported to be the second largest economy in the world, second to the US. The numbers are given to us by the Chinese government so right off the bat you should be cautious. Before you go investing in China, remember that the Chinese government is known for faking its numbers.

As some commerce department employees in China have told me, you will never see bad economic numbers out of China, the government is so concerned with saving face that they will never give you the accurate numbers on anything if those numbers are bad. Much like with the Olympics, we know much of what they told us, wasn’t really all that accurate. I did a project in China on the mines there, during 2007 they reported 10,000 mining deaths, that’s more than the rest of the world put together. Now that was the official number but Chinese government officials said the real number was actually twice that number. But to publish that would have been really bad. They were ok with saying 10,000. But the next year the number dropped, officially, but the problem is, that the central government has very little control at the provincial level. Thus, the local guys are generally covering up bad numbers in order to keep their jobs. Also, much of China still needs to catch up to western standards of product quality, China has yet to produce a car that will pass US safety standards. Yes they make cars but I sure wouldn’t want to get in one.

Part of China’s industrial growth is due in part to the production of very cheap stuff. This stuff is so cheap that you often have to replace it sooner than the better quality products. What this means is, your cost of ownership goes up and the need for more materials to produce more cheap stuff goes up. I am often amused by consumers who claim they are conscious of what they buy and want to protect the environment and then go out and buy these cheap Chinese goods. I would rather buy and America made product that is made to a higher standard that will last longer. My initial purchasing price may be higher, but if the overall cost for the life of the product is less, I actually saved money. Here’s an example, you buy a cheap bike at Wal Mart that is made in China that lasts a year, and over 5 years you go back to buy a bike every year at the cost of $100 each year. Or you buy a US made bike that costs $350 and not have to replace it over the life of 5 years. So yes, you paid more up front for the US bike, but your cost of ownership over the 5 year life, was actually less, you saved $150 over the Chinese made bike. Not to mention you reduced the demand for raw materials and energy consumption because you bought a bike that was produced once, verses 5 times. If consumers wise up and buy on quality, China can’t compete.

Be careful when it comes to the numbers reported by China or anyone else for that matter. The way the US reports it’s numbers are far better, but there is still room for improvement, as goes with any other country. But China especially since everyone wants to talk it up, but really we have very little solid verifiable data coming out of China, it’s basically a trust them game that we play and if you are going to invest millions or billions on the info, I’d think twice about it.