Page 1

September 2013

The Social Equation Social media insiders talk about engaging China’s savvy consumers, ‘water armies’ and why it could all be a bubble. PLUS: Young Women and Online Shopping

New President at the Helm

Incoming AmCham Shanghai President Ken Jarrett talks about his top goals – raising the Chamber’s public profile, moving faster into the digital age and bilateral relations


Fast beats slow Effective warehouse design means short routes for goods and staff. Using containers in conjunction with intelligent conveyor systems speed up and optimise logistics operations. We show you how to become fast, flexible and efficient. Contact us, we will gladly advise you.

P: +86/21/5308 3678 ăƒť E: shanghai@ssi-schaefer.cnwww.ssi-schaefer.cn ăƒť


INSIGHT SEPTEMBER 2013

The Journal of the American Chamber of Commerce in Shanghai

amcham shanghai President

Kenneth Jarrett VP OF PROGRAMS & Services

Scott Williams

F e at u r e s

12 New President at the Helm

12

INTERVIEW

By Bryan Virasami

Incoming AmCham Shanghai President Kenneth Jarrett shares why he wants to raise the Chamber’s public profile and his other goals.

VP of Administration & Finance

Helen Ren Directors Business development & Marketing

Patsy Li Committees

Stefanie Myers Events

18 The Social Equation

Guest writers Kunal Sinha, Kestrel Lee and Jeremy Goldkorn provide their views on social media trends and what brands need to know before they jump on the bandwagon. See our special 14-page report.

Jessica Wu Government Relations & CSR

Steven Chan Membership & CVP

Linda X. Wang

INSIGHT EDITOR-IN-CHIEF

Bryan Virasami

18

COVER STORY

32

32 Gateway to the World INDUSTRY INSIGHT

By Erika Wang

See why the world’s busiest container port is a key part of China’s national development plan.

Senior Associate Editor

Erika Wang senior communications associate

Ryan Balis Design

Alicia Beebe Printing

Mickey Zhou Snap Printing, Inc.

37 Keeping That Edge

By Mary Rezek

A seasoned expat talks about how executive women can conquer workplace challenges in China.

INSIGHT Sponsorship (86-21) 6279-7119 ext. 5667 Story ideas, questions or comments on Insight: Please contact Bryan Virasami (86-21) 6279-7119 ext. 5668 bryan.virasami@amcham-shanghai.org Insight is a free monthly publication for the members of The American Chamber of Commerce in Shanghai. Editorial content and sponsors' announcements are independent and do not necessarily reflect the views of the governors, officers, members or staff of the Chamber. No part of this publication may be reproduced without written consent of the copyright holder.

37

EXECUTIVE WOMEN

I n s ig h t s ta nd a r d s

5 News Briefs

40

11 Movers and Shakers

MONTH IN PICTURES

Highlights from Recent Events

50

EXECUTIVE meeting room

Favorite Place to Meet Business Clients

INSIDE AmCham Shanghai Centre, Suite 568 1376 Nanjing West Road Shanghai, 200040 China tel: (86-21) 6279-7119 fax: (86-21) 6279-7643 www.amcham-shanghai.org

42 From the Chair 43 Board of Governors Meeting 44 Government Relations 48 Committee Highlights Cover model: Jessica Jin/Photographer: Wu Chuanhua/Illustration: Mickey Zhou

Insight iPad App


Editor's note

I

t’s exciting to be able to witness the evolution of social media and how it’s affecting the lives of millions around the world – whether or not we realize it. It’s also a special thrill to be here in China during the digital age – or perhaps in the age of WeChat it seems these days. The Tencent app has some 300 million users in China and is rapidly adding users around the world. While many use social media apps to stay in touch with friends, date or do research, brands big and small are adopting strategies to win followers, and in turn, customers. And while it’s not news that Chinese consumers are breaking all the rules of the digital age in how they spend money online, our special report examines this unfolding story. Guest writer Kunal Sinha of Ogilvy tells us which brands are connecting with their customers in smart ways and what others need to do to compete. Jeremy Goldkorn of Danwei reveals the dark side of social media

Bryan Virasami editor-in-chief

4

insight

september 2013

and how “water armies” can make or break a brand’s online reputation with manufactured comments. Also, Kestrel Lee of Zeno Asia shares anecdotes and advice about what you need to do to maximize your company’s exposure on social media networks in China. And finally, we ask young women why they’re abandoning shopping malls for online shopping. Several colleagues at AmCham Shanghai helped make this special 14-page report possible. Thanks to our cover model Jessica Jin, a former employee, Chia Lian of the SME Center and summer interns Iris Shen and Jenny Xu for helping us illustrate this special report with their photos. Also in this edition, we have an interesting interview with incoming President Ken Jarrett who discusses, among other things, his goal of boosting the public profile of the Chamber. Expect to hear and read more about this in coming months.


imaginechina

News

n n ew ew s s b br r ii e ef fs s

CHINA BUSINESS

GM maintains strong growth in China General Motors’ second quarter earnings surpassed expectations with sales 11.5% higher than that of the first quarter. According to Forbes, the Chinese market accounts for about 45% of GM’s total portfolio value. GM has built a strong presence in the low-end budget sector with China-specific models such as Le Chi and the Baojun 360, which have a base price of US$6,000 and US$10,000, respectively. It received approval to build a US$1.3 billion plant in Shanghai with a capacity of 150,000 to manufacture its luxury brand Cadillac. GM holds a 15% market share in the industry, but is yet to establish a presence in the luxury sector, which is dominated by German brands such as Audi, Mercedes-Benz and BMW.

China opens natural gas pipeline in Myanmar China has opened a pipeline to bring natural gas from Myanmar, bringing to fruition the joint venture between state-run China National Petroleum Corporation (CNPC) and its Myanmar counterpart, Myanmar Oil and Gas Enterprise. The pipeline, which stretches 793 kilometers connecting the Bay of Bengal with Yunnan province in southwest China, is expected to carry 12 billion cubic meters of natural gas to China per year. CNPC owns a 50.9% stake in the US$2.5 billion project to build oil and natural gas pipelines between the two nations. Parallel oil pipelines are expected to be completed in September.

Shanghai Tower now China’s tallest building Shanghai Tower hoisted its final beam

Free trade zone approved for Shanghai The State Council has approved plans for a tax-free area in Shanghai. Slated for completion in 10 years, the pilot zone will cover 28 square kilometers and will include the Waigaoqiao Port, the Yangshan Deep Water Port and Pudong International Airport, which together had a combined trade volume of more than US$100 billion in 2012. The plans are currently undergoing procedures of approval prior to being published, said a spokesman for the Ministry of Commerce. The free trade zone would allow for goods to be imported, manufactured and exported. Shanghai Mayor Yang Xiong said that the establishment of the free trade zone will be his top priority, kick-starting a trial zone to test out new policies while controlling risks to work towards final regulations for the free trade zone. Planned policies include changing Shanghai’s customs policies to allow imports to enter and exit the zone intervention-free, in addition to paving the way for rate liberalization and allowing full convertibility of the renminbi.

onto its top at a ceremony on August 3, making it the tallest building in China at 580 meters. Once its external crown structure is completed in 2014, it will stand at 632 meters, or 121 stories, and will be Asia’s tallest building and the world’s second tallest behind Dubai’s

SEPTEMBER 2 0 1 3

as yet uncompleted Burj Khalifa. The building will be used as a retail center in addition to office space and a luxury hotel. The building was designed by U.S. firm Gensler, and features a spiraling cylinder form to lower wind resistance. The completion of the tower will bring

insight

5



the city’s goal to have three super tall skyscrapers in the heart of the financial district to fruition, joining the 492-meter high Shanghai World Financial Center and the 420-meter high Jin Mao Tower.

CORPORATE NEWS

Xiaomi launches budget model China’s Xiaomi launched its budget smartphone, “Hongmi” or “Red Rice” priced at RMB799 (US$130) on August 12. Xiaomi joins domestic competitors Huawei, ZTE, Lenovo and Coolpad in the burgeoning budget smartphone market. Xiaomi recently surpassed Apple in China’s market share for smartphones with both companies holding about 5% of the market. Samsung currently holds the No.1 spot at 19%. In August, Xiaomi reported it was close to finalizing a funding deal worth US$2 billion with major investors including Chinese Internet giant Tencent. With its growing presence, Xiaomi said it is planning an IPO for 2015.

Tencent introduces monetized WeChat Tencent Holdings Ltd. has introduced WeChat 5.0, which allows users to make online payments, going head-to-head with rival Alibaba Group Holding Ltd. in the lucrative e-commerce industry. The new version of the WeChat platform features games, QR and barcode scanner tools and a payment function which allows WeChat’s more than 400 million users to integrate their WeChat accounts with their bank accounts to buy goods via several e-commerce platforms. According to a report by McKinsey and Company, China’s e-commerce market is expected to triple to a net worth of US$395 billion by 2015.

Ascent Solar agrees to joint venture plant in Jiangsu Thin-film photovoltaic module manufacturer Ascent Solar Technologies, Inc. signed an agreement with the

Municipal City of Suqian in eastern Jiangsu province to implement a three-phase construction project through 2019. Under the agreement, Ascent and Suqian will form a joint venture in which Coloradobased Ascent will have majority interest of up to 80%. The JV will build a factory to manufacture Ascent’s proprietary photovoltaic modules on flexible thin films. Ascent will contribute proprietary technology, intellectual property, about US$1.6 million and equipment. The city of Suqian will provide US$32.5 million and rent-free use of a 270,000 square foot factory, expandable to 1 million square feet.

MACROECONOMICS

Chinese manufacturing resumes growth Chinese manufacturing resumed expansion in August after shrinking the most in almost a year in July. A preliminary purchasing managers index for China by HSBC Holdings Plc and Markit Economics rose to 50.1 from 47.7. A reading above 50 indicates expansion. China’s manufacturing indicates the world’s second-biggest economy is strengthening after a two-quarter slowdown. The 2.4-point jump in the China measure was the biggest gain since August 2010, when the gauge rose 2.5 points to 51.9, according to Bloomberg. The preliminary China reading is based on about 85 percent to 90 percent of responses to surveys sent to more than 420 manufacturers.

China services PMI picks up In July, the non-manufacturing purchasing managers’ index crept up to 54.1 from 53.9, marking the first growth since March of this year. A PMI reading above 50 indicates growth in the sector, while a reading below 50 indicates contraction. Analysts said the increased PMI signifies stabilization and may push second-half growth rate by upwards of 7.6%, up from 7.5% from April to June. The recovering non-manufacturing PMI concurs with

the improving manufacturing PMI, which rose to 50.3 from 50.1, according to the National Bureau of Statistics. China’s nonmanufacturing PMI is based on a survey of 1,200 firms across 27 industries.

Oversupply puts steel industry in red The steel industry in China faced a cumulative loss of RMB699 million (US$113 million) in June, the first month this year that the industry declared negative profits. Steel mills posted RMB2.27 billion in profits for the first half of 2013 but steel prices, which have been dropping since February, fell 6.45% at the end of June compared with the beginning of this year and 14.7% yearon-year, according to the China Iron and Steel Association (CISA). CISA officials attributed the losses to an oversupply in the sector. Currently, the excess stockpile remains at 15.46 million tons, about 30% higher than January, after peaking at 19.97 million tons in March.

U.S.-CHINA

GM to build US$1b plant in Chongqing General Motors’ commercial Chinese brand SAIC-GM-Wuling started construction in July of a new production center in Chongqing’s Liangjiang New District. The plant is set to begin production in 2015, with an annual capacity of 400,000 cars and 400,000 engines, but it was not disclosed what vehicles will be built there. With an initial investment of RMB6.6 billion, the new factory is expected to generate sales of RMB13 billion per year and is part of the company’s push to reach a production target of 2 million vehicles per year by the end of 2015. GM invests US$1 billion every year in China.

Hanergy buys U.S. solar company Chinese clean-power producer Hanergy Holding Group Ltd. in late July purchased

SEPTEMBER 2 0 1 3

insight

7


Tucson, Arizona-based Global Solar Energy (GSE) Inc. for an undisclosed amount. GSE will continue its operations in the U.S. as a subsidiary of Hanergy. The deal will rescue the struggling American company, which specializes in manufacturing solar cells using copper indium gallium deselenide, thin-film technology that is lighter than traditional solar cell modules that can be used in portable and rooftop solar products in addition to electric vehicles. This was Hanergy’s third recent overseas purchase to appropriate technology, having bought California start-up Miasole and German solar group Solibro last year.

McDonald’s puts rice on Chinese menus McDonald’s China has added four new rice-based items to its menu: Chicken Rice Wrap, Beef Rice Wrap, Chicken Rice Bowl and Beef Rice Bowl. McDonald’s China said the additions are part of the company’s strategy of responding to consumer feedback and its effort to develop the night consumption market from 5 p.m. to 5 a.m. The new items range in price from US$2.60 to US$3.25. According to data from McDonald’s, dinner foods account for half of foreign food operators’ sales in China, and this market is growing at a double-digit pace. McDonald’s has more than 1,700 outlets and more than 90,000 employees in mainland China. The company said it plans to recruit 75,000 more employees this year, and the number of mainland outlets is expected to reach 2,000 by 2014.

Chinese art in New York City The New York City Department of Transportation (DOT) has put two pieces of contemporary Chinese-heritage inspired art on display on the streets of New York. Through participation in the International Studio and Curatorial Program (ISCP), Chinese artists will have their pieces on display in and around Chinatown through May 2014. Artist Tang-Wei Hsu’s piece, “Monkey Magic,” is inspired by the Monkey King folk tale,

8

insight

while artist Jen Liu’s “Melon Mysticism” was inspired by Buddhist mandalas. The collaborative program between DOT and ISCP began in 2008, and has sponsored more than 100 pieces of art, displaying them in Brooklyn and Manhattan.

GOVERNMENT AND POLICY

Ban on new government buildings As part of the Chinese government’s frugality campaign, the Central Committee of the General Office of the Communist Party and the General Office of the State Council in Beijing announced a halt on the construction, purchase, restoration and expansion of new official buildings for the next five years. CPC and government organizations will not be allowed to receive any construction sponsorships or donations and may not collaborate with enterprises on construction projects. The joint issue directive states that all party and government bodies must focus spending on developing the economy and promoting the wellbeing of the public. Restoration projects will still be allowed, but only if the purpose is to remove safety risks and must be approved by the general offices.

People’s Bank of China abolishes floor on lending rates The People’s Bank of China (PBoC), China’s central bank in charge of regulating policy and financial institutions, scrapped a floor on the discount banks can offer to borrowers. Previously, banks were barred from offering loans with interest at less than 70 percent below the one-year benchmark. The bank has removed the restrictions in an attempt at interest rate liberalization, it said in a statement. A limit on mortgage rates and a cap on deposit rates, currently 10% higher than the PBoC benchmark rate, will remain. The limit on mortgage rates will stay to curb property speculation, PBoC said.

september 2013

China introduces new VAT tax reforms China’s State Administration of Taxation (SAT) announced that effective August 1, value-added tax (VAT) reforms, which replace the turnover tax with a value-added duty in transport and some service sectors, will be expanded nationwide in an effort to further reduce tax burdens on businesses. VAT refers to a tax levied on the difference between a commodity’s price before taxes and its cost of production, while turnover tax refers to a levy on a business’ gross revenues. VAT reforms had been previously piloted in 12 provinces and municipalities, including Shanghai, Beijing and Shenzhen. In addition, small businesses with less than RMB20,000 (US$3,240) in monthly sales have been exempt from VAT and turnover tax.

Only four Chinese cities meet air pollution standards According to the 2013 China environment ministry’s air pollution report, Lhasa, Haikou, Zhoushan and Huizhou are the only four major population centers in China that were deemed of acceptable standard, with particulate matter (PM) levels at 35 micrograms per cubic meter. The ministry measured PM levels in 74 cities, with an average of 76 micrograms per cubic meter from January through June. The World Health Organization recommends exposure of less than 10 micrograms per cubic meter per year, with a maximum exposure of under 25 micrograms per cubic meter over a 24-hour period. The American Embassy in Beijing recorded a PM level over 800 micrograms per cubic meter in January.

SHANGHAI BUSINESS

Shanghai instates multi-tier water prices The Shanghai Municipal Development and Reform Commission announced the implementation of price increases in residential water fees in August, with higher fees in correlation to higher water


consumption. There will be three price ranges for residents: consumption of under 220 cubic meters of water a year will have a rate of RMB3.45 per cubic meter, annual consumption between 220 and 300 cubic meters a year will be charged RMB4.83 per cubic meter and consumption over 300 cubic meters a year will be charged at RMB5.83 per cubic meter. The minimum price of RMB3.45 per cubic meter is a 23.2% increase from the previous fee for water.

Rents for Shanghai grade-A offices lowest in 12 months Shanghai average rental rates in the second quarter fell to RMB9 per square meters per day, a 0.8% decrease and the lowest level over the past 12 months, according to a review by international property consultant Knight Frank. Average vacancy rate of Grade-A offices was at 4.8% in Q2, a 0.4% decrease from Q1. The review cited increased turnover of office space as a result of slower economic growth or desire for larger space and lower rent. Despite

slightly lower figures, the company said that market demand in general remained strong, with large multinational companies and domestic companies, especially professional, financial and trading companies, continuing to expand into premium office space.

BMW, GLP and Brilliance Auto to open joint facility Global Logistics Properties Ltd. (GLP) has signed an agreement with BMW Brilliance Automotive Ltd. to create a 75,000 square meter custom facility at GLP Park Lingang in Shanghai. The finished facility will be Brilliance’s largest parts distribution center in China and Asia. The first phase of construction, which will complete 55,000 square meters, will begin by the end of the year. GLP’s Park Lingang supports third-party logistics providers and shipping companies operating in the vicinity of Yangshan Deepwater Port. BMW Brilliance Automotive Ltd. is a joint venture between BMW and Brilliance

Auto, focused on the production, distribution and sale of BMW passenger cars in mainland China.

China launches gold-backed ETFs Guotai Asset Management Co. and HuaAn Asset Management Co. launched goldbacked Exchange-Traded Funds (ETFs) on the Shanghai Stock Exchange on July 29, a move that analysts said signals the openingup of the country’s gold market. The Shanghai Stock Exchange’s newly released guidelines for gold-backed ETF trading states that investors can sell holdings on the same day of purchase. Initial funding and trading on the market over the first week raised RMB4.3 billion from investors, slightly lower than expected due to a decline in gold prices. The majority of current investors are institutions, with managers of the two funds buying gold contracts on the Shanghai gold exchange for their investors, unlike the U.S. and European ETFs who buy and store bullion for investors.


CHINA & THE WORLD

SOUTH AMERICA ASIA-PACIFIC SIA PACIFIC

AUSTRALIA: China buys 80% stake in mine China’s Molybdenum Co. Ltd. (CMOC), the nation’s second largest manufacturer of steelmaking materials, reached an agreement with Rio Tinto Group to purchase an 80% share in Rio Tinto’s Northparkes copper and gold mine in New South Wales for US$820 million. The move marks China Molybdenum’s first overseas copper acquisition. The final sale will be closed by the end of 2013, but will depend on the approval of CMOC shareholders. Rio Tinto said it will continue to manage Northparkes’ safety and environmental standards during the transition time. According to Bloomberg, Chinese metal companies have announced more than 60 mining deals so far this year valued at a cumulative US$7.1 billion.

MIDDLE EAST

ASIA-PACIFIC SIA PACIFIC EUROPE

MOROCCO: Chinese firm to build coal-fired plant in Jerada Moroccan state power utility ONEE released a statement announcing a deal with Chinese firm Sepco III to build a 318-megawatt plant in Jerada, a former coal mining city near the Algerian border, for US$359.5 million. Sepco III won a 3 billion dirhams tender launched by ONEE last year to build the second coal-fired power plant. China’s Exim Bank will finance the construction, with the plant to start operating at the end of 2016 in order to meet Morocco’s growing power demand, which is currently rising at approximately 10% per year. It has to spend heavily to subsidize power due to high production costs.

MIDDLE EAST EUROPE

AFRICA

UNITED KINGDOM: Ping An acquires Lloyd’s of London building China’s second-largest life insurance group, Ping An, purchased the Lloyd’s of London building for US$388 million. A statement from the London property broker in charge of the deal says that the Chinese group purchased the building from its previous holder, a Commerz Real AG-managed fund. The sellers gained a net initial yield of 6.1% for the sale, having bought the building in 2005 for US$231 million. The Lloyd’s of London building is one of the world’s most visible properties, in part due to its unique design by architect Richard Rogers, earning its moniker as the “InsideOut Building.” The Society of Lloyd’s has a lease on the building until 2031.

NORTH AMERICA MIDDLE EAST

AFRICA

QATAR: Qatar Airways announces flights to Chengdu Qatar Airways will launch three non-stop flights a week between Doha and Chengdu Shuangliu International Airport beginning September 3. Qatar Airways will be using an Airbus A330, with 248 seats in economy and 36 in business. To promote the launch, Qatar Airways launched a social media campaign “Where’s the Panda,” offering residents around the world the chance to win a business class flight to Chengdu. A spokesman from Qatar Airways said he hopes that the Chengdu route will become a modern “Silk Road” by connecting western China to more than 125 destinations around the world. Chengdu Shuangliu International Airport now also offers visa-free stopovers for 72 hours.

NORTH AMERICA

MIDDLE EAST SOUTH AMERICA AFRICA

UNITED STATES: China and U.S. joint crackdown on counterfeit tech In a month-long effort, the U.S. Customs and Border Protection worked with the General Administration of China Customs in an attempt to curb fake electronics, such as Apple, Samsung, Blackberry and Dr. Dre products. More than 243,000 items were seized in ports, mainly Anchorage, Cincinnati, Los Angeles, Newark, Beijing, Guangzhou, Shanghai and Shenzhen, as they were being exported from China or imported into the United States. The two countries recently held discussions agreeing to continue to work together to enforce intellectual property right infringements, which costs U.S. businesses about US$320 billion a year, according to a report by the Commission on the Theft of American Intellectual Property.

AFRICA ASIA-PACIFIC SIA PACIFIC NORTH AMERICA

SOUTH AMERICA

NORTH AMERICA SOUTH AMERICA EUROPE

CHILE: Taiyuan machinery firm exports steel parts to Chile Taiyuan Heavy Machinery Group Co. Ltd. (TZ) has become the first Chinese heavy machinery firm to export wear-resistant machinery parts to a South American country. The firm sent two sets of steel alloy machinery parts which will be used in a set of mining crushers in the Salvadora mine in Chile. The high-precision parts, using cutting edge casting technology, weigh almost 100 tons. TZ and Chile signed export contracts in March, with TZ exporting the world’s largest mining excavators at 55 cubic meters and 1,800 tons to Chile earlier this year. TZ is the oldest independent heavy-duty machinery manufacturing firm in China.

ASIA-PACIFIC SIA PACIFIC

10

insight

september 2013

SOUTH AMERICA ASIA-PACIFIC SIA PACIFIC


Movers and Shakers co m p i l e d b y j oyc e b i a n

Movers and Shakers highlights major personnel changes within the Chinese government at various levels and senior management-level movements within multinational companies in China.

Dow Chemical Dow Chemical named Peter Sykes as Asia Pacific president in July. Sykes has served as Greater China president for Dow Chemical since 2009. Sykes succeeded Pat Dawson, who will become Senior Vice President for Dow Global Epoxy Business and Corporate Project Development. Peter Wong, Asia Pacific Commercial Vice President for Packaging and Specialty Plastics, will succeed Sykes as Dow Greater China President. Peter Sykes

Private Sector Eaton Chen Yuanxing was appointed vice president, Asia and chief legal counsel for Eaton in July. Reporting to Eaton Asia Pacific president Curt Hutchins, Chen will be responsible for overseeing the company’s initiatives in legal procedures Liu Hui for the region, including commercial contracts, intellectual property protection and anti-corruption compliance to Eaton global operations requirements. Eaton announced that Liu Hui was appointed Asia Pacific president for Eaton’s Hydraulics Group, effective in July. CHINAVEST Pierre Cohade, former president of Goodyear for Asia Pacific from 2004 to 2011, has returned to Shanghai to join Wells Fargo Chinese Investment Bank affiliate: ChinaVest. Cohade was an active Pierre Cohade member of the Shanghai Business community and served on AmCham Shanghai’s Board of Governors. In his new role, Cohade will leverage the global consumer and manufacturing strategic and operational experience he gained at Goodyear, Danone and Kodak to support ChinaVest customers. ChinaVest specializes in strategic and M&A advisory services for Western companies inbound to China and outbound Chinese companies.

GM GM appointed Tim Lee China Chairman in early August. Lee will be responsible for 12 joint ventures, two wholly owned foreign enterprises and more than 55,000 employees. Lee has spent nearly four years Tim Lee in charge of GM’s international operations. He will continue in his role as executive vice president for global manufacturing.

Matthew Tedesco

Haworth Haworth appointed Matthew Tedesco as managing director for the Greater China and North Asia region in late July. Tedesco brings to the role his knowledge and experience in building new distribution models and supporting dealer development.

Goldman Sachs The Goldman Sachs Group, Inc. recently announced that Ken Hitchner will become President of Goldman Sachs in Asia Pacific (not including Japan), with day-to-day responsibility for all of the firm’s businesses in the region. He will be based in Hong Kong and will work closely with Mark Schwartz, chairman of Goldman Sachs Asia Pacific, and Masa Mochida, president of Goldman Sachs Japan.

If your company has executive personnel changes, please contact Joyce Bian at joyce.bian@amcham-shanghai.org.

SEPTEMBER 2013

insight

11


INT E R V I E W B y B r ya n V i r a s a m i

K

enneth Jarrett, a former U.S. consul general in Shanghai and chairman of APCO Worldwide, took up his new job as president of AmCham Shanghai on September 1. Jarrett’s public service career is broad and spans the globe. He spent 26 years in the U.S. Foreign Service, which included stints as vice consul at the U.S. Embassy in Manila and other senior positions at the United Nations, Chengdu, Beijing and Singapore. Jarrett is no stranger to U.S.-China business relations. Before he took on his latest role, he told us about his priorities during his first 100 days, his views of President Xi Jinping and much more. The following is a transcript of the interview.

AmCham Shanghai President Kenneth Jarrett with U.S. Ambassador Gary Locke during an event in Shanghai

New President at the Helm Kenneth Jarrett talks about his new role, bilateral relations and why it’s important to boost AmCham Shanghai’s public profile

12

insight

september 2013

Insight: Why did you want to become president of AmCham Shanghai? Kenneth Jarrett: “There are three elements to the answer. The first is my overall belief in the importance of U.S.-China relations. The second is my strong belief that AmCham Shanghai and the business community play an important role in that bilateral relationship. Given what the Chamber can do to promote U.S.-China ties, for someone like me who is intensely interested in U.S.-China relations, the opportunity to lead an organization like AmCham Shanghai was simply one not to be missed. And third, I believe that I have a background that will allow me to contribute to the Chamber, a terrific organization and one that’s been around for close to a hundred years. Thus, as you can see, there were many strong incentives for pursuing the position.” Insight: You’re a former consul general and a former chair of AmCham Shanghai. Did you learn anything from those positions that could prove useful in your role as president? KJ: “Yes, I’ve learned a number of things from those positions that will be helpful. And I would add that even my most recent position in the consulting world provided lessons that will be beneficial for my new position. But let me begin with the consul general’s role. In that position I interacted regularly


KENNETH JARRETT Career Highlights: Greater China Chairman for APCO Worldwide (2008–2013); 2012 AmCham Shanghai BOG Chair; U.S. Consul General to Shanghai (2005–2008); Deputy Consul General, Hong Kong (2001–2004); White House National Security Council (2000–2001) Years in China: 16 years in mainland China; 22 years in Greater China; 27 years in Asia with Chinese government officials in the core geographic region where the Chamber is most active, namely the Yangtze River Delta. The Consulate’s geographic responsibility has a perfect overlap with where the Chamber’s traditional focus – Shanghai, Jiangsu, Zhejiang and Anhui province. As a result, I have a good understanding of key local government leaders, their priorities, how they work and how to get things done. It’s not enough to just have a theoretical understanding of the political and economic dynamic in the YRD. What’s particularly important to the Chamber and its members is how one can translate what might be viewed as an academic understanding into operational benefits that help our members. “It was the consul general’s position, where I worked closely with the Chamber and the American business community for three years (2005–2008), that gave me my initial understanding of what the Chamber is all about. That period also gave me a good understanding of the priorities of the American business community. In my subsequent role as the 2012 Chair at the Chamber, the principal benefit was acquiring an even more detailed understanding of what the Chamber does. This flowed from my prior service on the board and involvement in discussions about Chamber goals and priorities. It was my service on the board that gave me a better idea of the capabilities of the Chamber, where we could make a difference as well as some of the Chamber’s operational challenges. In addition, board service and my role as 2012 Chair brought me into regular contact with the Chamber’s staff, especially the senior staff. That left me with a strong appreciation of the Chamber’s very talented team, which of course is another attraction of the position. “As I said at the outset, my position in the private sector as a consultant these past five years was also beneficial. Having that private sector experience is critical to being effective in leading the Chamber because the Chamber represents the private sector. Having worked in the private sector, and managed a China operation, is an important credential at the very least. But it also gave me a

U.S. hometown: New York Languages: English, Chinese Hobbies/Interests: Hiking, swimming, travel, film Last book read: Kissinger’s On China & Julie Otsuka’s When the Emperor was Divine

more detailed understanding of the kinds of challenges that foreign companies face in China. Thus, to sum up, all three past roles have provided insights, from different perspectives, that will serve me well as I begin this new position.” Insight: Do you have an agenda for the first day or your first 100 days? KJ: “Despite my familiarity with the Chamber, there are aspects of running the organization that I still need to learn. So part one of my answer is that during those initial three months, I need to learn the organization inside and out. This means getting to know all members of the staff and having a solid understanding of how the Chamber runs and functions. “Second, I plan to meet key stakeholders of the Chamber. For starts, this means our internal stakeholders, i.e., our members. We have a large and diverse membership which means I can’t promise to go out and meet all of nearly 4,000 members but I do want to make sure I can interact as much as possible with members, especially committee chairs, members of the board, companies that are key sponsors of Chamber events, past chairs of the board and a broad range of members. From this outreach I hope to hear more about what members would like to see the Chamber provide. “In the category of key stakeholders, I would also include our government partners, both U.S. government and Chinese government alike. For the Chinese government, this will involve trips within the Yangtze River Delta to introduce the role of the Chamber to our key local government

september 2013

insight

13


In terms of new directions, I would like to see the Chamber boost its profile, both with our government stakeholders – U.S. and Chinese alike – and with the media.”

partners. For the U.S. government, we will have the Washington Doorknock shortly after I start my new position. And finally, we also have media stakeholders. They are an important constituency and I want to make sure they have a sense of what the Chamber’s objectives are in the period ahead. “As for putting all of this against a timeline, during the first 100 days, the schedule of events will have a lot to do with how I spend each day. The start of my tenure will coincide with the last quarter of the year. This is traditionally a very busy period. I’ve already mentioned the September Doorknock to Washington. There will also be the Government Appreciation Dinner and the Annual General Meeting later in the fall. In addition, we have the ongoing SME Center initiative and the Yangtze River Delta initiative. All of those activities will define my calendar. Finally, I would add that this 100-day period is a key period for me to identify and articulate any new direction that I want to take the organization and make sure our key stakeholders have a good sense of what that might be.”

leadership overall. Finally, the last area for further consolidation would be our government relations outreach. The senior government relations position was filled last year with Steven Chan [as director]. With Steven and Celia [Yang] we now have a very strong team and I intend to explore what more we can do with that team to provide benefits to our members. All of the above is in the category of consolidation. “In terms of new directions, I would like to see the Chamber boost its profile, both with our government stakeholders – U.S. and Chinese alike – and with the media. This is linked to the ability of the Chamber to be more effective in influencing policies which affect our members. If we want to help our members resolve business challenges, part of our ability to do so is linked to our influence. If we strengthen our public profile, that in turn will translate into more influence and make us more effective. That’s why I believe it would be useful for the Chamber to boost its profile. This is one potential new area that is very much on my mind.”

Insight: Is there anything you want to share in terms of the new direction or is it too early? KJ: “Perhaps a bit early right now to say too much. One important mission is to consolidate those key initiatives already under way but still with some distance to go before they’re well solidified. By these I mean in particular the SME initiative. We have a new physical center and we’ve launched the webpage, but there’s still a fair amount of work in terms of publicizing the role of the SME Center and maximizing the impact of this valuable and overdue initiative on the part of the Chamber. That’s one example of the consolidation that needs to be done. The Yangtze River Delta is another – we have a successful office in Suzhou, but what happens next with that initiative in terms of outreach to other key cities in the YRD? “In addition, we have a very strong committee system and we’re looking at ways to make better use of the business intelligence that comes out of committee meetings. This is part of yet another larger goal, which is to enhance our thought

Insight: The Doorknock is this month. What are some issues that you feel you must raise in Washington? KJ: “All foreign companies are finding the environment in China is b ecoming more competitive, whether because of more foreign competitors or stronger domestic competitors or both. There is a growing concern that the rules are not applied equally to foreign and Chinese companies. This issue of a level playing field has been out there for quite some time but it remains a relevant concern and will be one of the themes of the Doorknock. Within that large rubric it’s more a matter of which specific issues the business community believes Washington should tackle. For example, we know from the recently concluded Strategic and Economic Dialogue that the U.S. government is prioritizing work on a Bilateral Investment Treaty. This is something the Chamber welcomes. “The general question of how to make U.S. companies more competitive will be another theme

14

insight

september 2013


of the Doorknock. What more can the U.S. government do to facilitate competitiveness? This topic dovetails nicely with our SME Center initiative. We hope this Doorknock will result in some agreements between the Chamber and U.S. government agencies principally focused on commercial relations or export promotion. So it’s possible that we could have substantive outcomes in terms of MOUs with par ts of the U.S. government that will help facilitate the work that the SME Center intends to pursue. “Finally, I suspect Washington will want to hear our views on the state of the Chinese economy. For many American companies, this is also one of their biggest concerns. How will China’s growth rate look over the next five years and what does this mean for U.S. business? We’ll be prepared to speak to that when in Washington.” Insight: Overall, where do you think things are headed for U.S.-China relations? KJ: “Overall, I remain optimistic about U.S.-China relations. This attitude is shaped by my three decades of exposure to the bilateral relationship. It’s a relationship that has had plenty of ups and downs, but despite those changes, the overall trajectory of the relationship continues to move in a positive direction. There’s growing interaction between the two governments, growing trade and economic interdependence between our two countries, and growing exchanges between our two peoples. If you look at areas of cooperation between the United States and China, those areas continue to grow. This leaves me with a feeling of confidence and optimism that even when the bilateral relationship hits bumps in the road, our respective leaders will feel a deep commitment to set things right. For that reason, we should all feel hopeful that the relationship will continue to move forward. “That said, there are a number of issues at the moment that are troubling the relationship. There’s much talk about strategic mistrust on each side. China feels that the United States is trying to constrain its international role or ability to become more influential on the global stage. In the United

Kenneth Jarrett with Shanghai Vice Mayor Ai Baojun

States, there is concern about what China’s intentions might be in terms of its international or regional posture. There is a need for both sides to be as transparent as possible in indicating what their objectives and goals might be. This could help address some of the mistrust that exists. That’s one concern out there. “In addition, there are specific political-security issues where our two countries have differences, such as Iran or Syria, and to a lesser extent, North Korea. Currently, cyber security is a much talkedabout topic between our two governments. These are among the issues that Americans back in the United States read about in the media, which in turn shape perceptions and perhaps leave people with a negative view of where the relationship is headed. This takes us back to the role of the Chamber and the importance of trips such as the Doorknock because it’s through those interactions with policymakers in Washington, or with the media, that we’re able to give an on-the-ground perspective of how we see things in China and provide an informed perspective on some of these issues that get discussed in the press.” Insight: Xi Jinping took over as president this year. Are you pleased with his performance so far as far as his handling of U.S.-China relations? KJ: “Xi Jinping has a very challenging position

september 2013

insight

15


…Even a terrific organization can still improve and AmCham Shanghai is no exception.”

given the high expectations of the Chinese people. He is beginning what is likely to be 10 years of leadership with a full inbox – maintaining growth, rebalancing the economy, addressing social inequality, tackling corruption and cleaning up the environment, just to name a few issues he must tackle. In terms of U.S.-China relations, I don’t expect any significant deviation from the approach of Hu Jintao. Xi is also committed to positive relations, as is President Obama. We have seen lots of continuity in terms of what the two leaderships are looking for in the relationship. Xi Jinping’s short sleeve summit in California is a case in point. This was a very encouraging sign because it’s atypical for a Chinese leader to participate in this kind of unscripted event for two days. Typically, Chinese leaders prefer protocol-rich and highly structured trips to the United States where form is more important than substance. The recent summit was an example of Xi Jinping indicating that he was really focused on substance and didn’t care as much about style. Not only is this encouraging but it also shows that Xi is different from previous Chinese leaders, and I mean this in a positive way. “For Xi Jinping, we must always keep in mind that he faces a host of challenges and his main concern must be domestic issues. That domestic agenda will shape what he can do with the United States and how quickly he can move.”

President Barack Obama with Chinese President Xi Jinping at the “short sleeves” summit in California in June

16

insight

september 2013

Insight: What areas do you think AmCham Shanghai excels in and what needs to improve? KJ: “I am grateful that I inherit a successful business Chamber that excels in a number of areas. We have a strong reputation and surveys of our membership consistently show high levels of satisfaction. I am mindful of the fact that the Chamber has a big and diverse membership. Different members are looking for different things f rom t he C hamb er. S ome memb ers want networking opportunities. Others might be more interested in business intelligence or obtaining insights about which direction Chinese policy might be moving. “ T he C hamb er has b e en success f u l in answering those varying needs. We offer a broad range of events and ample opportunities for networking. Our vibrant set of specialized industr y committees helps generate useful business information and keeps members informed about policy directions. “That said, even a terrific organization can still improve and AmCham Shanghai is no exception. I plan to take a close look at our programming, talk with members and explore if there are areas in our programming where we can do more. I know there is interest in more high-level speakers, whether these are corporate executives, senior government officials or well-known academics. This is an area where I hope we can do more. As for business intelligence, the demand is quite strong and if there are ways that we can provide additional business intelligence that would also be beneficial to members. The Chamber must also move more squarely into the digital age. We’ve started with Insight magazine now available as an iPad app. We’re also revamping the webpage. Thus, we’re moving in the digital direction but I’d like to accelerate that and as much as possible m a k e m o r e u s e o f m o d e r n i n f o r m at i o n technology to expand the accessibility of the information that the Chamber has. There are many additional ways – such as webcasts – where we can provide helpful information to members by tapping into available technology.”


Opportunity is everywhere. So are we. UniGroup Relocation is a global mobility network with nearly 1,200Â locations serving more than 180 countries across 6Â continents. Our broad range of pre-assignment, transportation and destination services are ready to help guide your assignees along every step of the journey, from beginning to end. Experience the difference of a common voice, a consistent standard of quality and unsurpassed local knowledge. Contact the regional office nearest you. Americas: americas@unigrouprelocation.com EMEA: emea@unigrouprelocation.com Asia/Pacific: apac@unigrouprelocation.com UniGroupRelocation.com/insight


The Social Engagement Young and savvy social media users are forcing brands – especially multinationals – to rethink how they engage with this new generation of consumers By Kunal Sinha

I

n the one minute it takes to read this paragraph, approximately 3.5 million searches are run on Baidu, 148,000 people visit Tmall and Taobao, 139,000 pictures are uploaded on Tencent’s Q-Zone, 95,000 posts are generated on Sina Weibo and 73,000 transactions are completed on Alipay. Each minute, China Mobile makes RMB246,000 (US$40,000) and Tencent makes RMB83,000 (US$13,300). By the end of last year, the number of social media users in China had reached 700 million people. Today, one in every four social media users in the world is Chinese. On average, the Chinese are members of 3.4 social networks (those living in the U.S., in comparison, are members of just 2.1). But mention the platforms above to people living outside China, and you would mostly draw a blank. That’s because this is a unique ecosystem that has not only been born, but has thrived – as some might argue, because of Facebook and Twitter being largely blocked. Widespread interest and use of social

18

insight

september 2013

media in China have resulted in a unique ecosystem and a multiplicity of social media platforms, each with specific uses. Q-Zone allows users to share diaries and photos, and QQ is used for gaming. Sina Weibo – which is something like Twitter – has the most brand and celebrity activity. RenRen began by reconnecting old friends from school. WeChat is used for chatting and locating people within the vicinity. Douban is about interests and hobby groups. Social media in China is much more two-way, involved and engaging – and the challenge for brands is to come up with campaigns that encourage and enable them to not just watch, but also participate actively. It is this complexity and the role that different social networking platforms play in people’s lives that brands must understand, if they want to engage with Chinese social media users more profitably. The opportunity for engagement is already there. For example, 38 percent of Chinese smartphone users use their


c o ve R s to r y

A screenshot of Burberry’s Weibo page

Advocacy Brazil

6%

22

China

30%

18

United Kingdom

12%

43

United States

13%

49

China’s actual and estimated online population, 2005–2015 Internet users in China (millions)

As Ogilvy and CiC’s study Crisis Management in the Microblog Era shows, the reluctance can stem out of inexperience in handling crises. When a crisis happens, it snowballs with amazing speed. Crisis stakeholders (victims, netizens, brands, media) exacerbate the crisis from multiple angles and channels. Key opinion leaders play an important role in pushing for change, while ordinary netizens and online influencers who sympathize with the victims help to spread the message further and faster. On March 15 this year – to coincide with World Consumer Rights Day – CCTV, China’s national broadcaster, ran a program

Passion [On a scale of 0-100, with 100 being the highest]

Courtesy KPMG

Social crisis

Advocacy Levels by Country

900 800 700 600 500 400 300 200 100 0

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

that attacked Apple’s customer service policies for Chinese consumers. For a company that manufactures and has huge demand in China, Apple has no real social media presence here, and it took two weeks for CEO Tim Cook to respond with a letter to customers on its website stating, “We are aware that owing to insufficient external communication, some consider Apple’s attitude to be arrogant, inattentive or indifferent to consumer feedback.” Apple’s statement infuriated customers even more, and the company had to send a senior executive to defuse the crisis. Since the Apple brand has enjoyed a positive image, and because its products have a large and loyal base, they survived the crisis, but not before their reputation took a beating. It remains to be seen if Apple’s social media engagement with the Chinese consumer has changed as a result of this crisis. Several multinational brands, on the other hand, have been quite successful in riding on the social media wave. Burberry is an interesting, successful example. The British

september 2013

insight

19

Courtesy Social@Ogilvy

mobile phone for more than five hours a day, checking them every six minutes on average, according to LabBrand research. The average Chinese social media user follows eight brands. E-commerce shoppers in China are much more likely to ask for advice and opinions about a planned purchase from their social network of friends than to run a search. In this environment, brands need to understand the role that different tools and platforms play in the lives of their consumer, and brand engagement must be tailored towards creating or enhancing the experience. But multinational corporations in China have been slow to use social media in their marketing and sales strategy. According to Professor Sun Baohong of Cheung Kong Graduate School of Business in Beijing, only 6 percent of Western MNCs use social media, compared with 50 percent of Chinese companies.


AmCham Shanghai interns Iris Shen, left, and Jenny Xu make use of a smartphone

…Multinational corporations in China have been slow to use social media in their marketing and sales strategy.”

20

insight

september 2013

brand was able to identify the unique nature of luxury goods consumption in China – the fact that the upscale consumer is much younger than their counterparts in Europe. Burberry moved the brand into a consumer life space. Its youthful brand ambassadors reinforce the feeling: Emma Watson, the former Harry Potter star, is very popular and recognizable among Chinese youth. The Burberry Music platform uses Douban – the hangout place for creatively oriented Chinese, while on Weibo, the brand’s activation connection emphasized the unique Britishness of the brand through music from Britain. Before a major launch event in Beijing, to enable Burberry’s chief creative officer Christopher Bailey to engage with as many people as possible, a mini activity was created that invited questions from ordinary members of the public and influencers


c o ve R s to r y

alike. Initiated on the Sina microblog, and amplified through online influencer participation, thousands of questions were asked of Bailey. After returning to London, he answered the questions on video, which were then subtitled, uploaded to the brand’s video-sharing channel, embedded on SNS channels and then forwarded by key online influencers. Burberry’s Chinese website traffic is up by 70 percent, and the brand has over 400,000 fans on Sina Weibo. In a completely different way, contraceptive brand Durex keeps the conversation personal and intimate. In a culture where people are shy about discussing private issues in public, the brand uses WeChat – where fans who are curious about relationships, love and sex can get a response from a real person, even at 2 a.m. in the morning. Every week, Durex’s WeChat friends receive a Q&A newsletter.

Social benefits Starbucks has constantly stayed on top of China’s social media scene. During a Christmas promotion, users of the location-based service Jiepang who checked into a Starbucks café in Shanghai, Zhejiang and Jiangsu provinces received a virtual Starbucks badge. The Christmas rewards were unlocked as soon as 20,000 badges were issued, and those who had received them enjoyed free upgrades on their drinks between December 17 and 25. A recent Starbucks campaign used WeChat’s features – asking fans who visited the store: “How are you feeling today?” Fans shared their mood by responding with one of WeChat’s 26 emoticons, and were rewarded by receiving a song that reflected their mood. In just four weeks, the coffee chain added 270,000 WeChat friends. It is projected that by 2015, China will have a billion people who are connected to each other through social networks. They will continue to influence each other. Brands have no choice but to choose their strategies well: Should they lead their customers, or take advice from their fans? Is it all about fame and popularity, or about deeper meaning and stronger relationships? The real challenge that lies ahead is finding the ability to convert connections into currency. Kunal Sinha is Chief Knowledge Officer and Shanghai-based Regional Director – Cultural Insights, Ogilvy & Mather Asia Pacific.

The voice message function is popular on WeChat

september 2013

insight

21


It’s the Millennials

Kestrel Lee of Zeno Asia

A social media advertising expert says younger consumers are more drawn to e-commerce

K

estrel Lee is the regional executive creative director for Zeno Asia, a Daniel J. Edelman agency that focuses on social media marketing and integrated advertising in China and Asia. He has won over 100 awards for social media and digital-led integrated campaigns for clients including Pernod Ricard/Martell VSOP, HP, Adidas and Mars. Insight’s Bryan Virasami posed some questions to Lee who shared his views on social media, advertising and his favorite blogger. Insight: What’s your favorite [personal] social media site/app and why? Kestrel Lee: “My favorite apps are WeChat and Dianping as they help me connect to friends immediately and provide recommendations for them.” Insight: Why are we hearing so much about WeChat nowadays? KL: “WeChat is the fastest-growing social communication channel in China with about 194 million active users in China and around 70 million users outside of China. It is also a channel which marketers in China are considering as a dominant brand platform alternative to Sina Weibo, even though they are quite different.

22

insight

september 2013

“WeChat is a social networking platform, focusing on customer outreach and peer-to-peer communication, using tools such as one message a day, drift bottle, find a person, scanning QR codes, etc. Sina Weibo is a media platform, focusing on content creation and sharing via a wide range of owned, paid and social media assets. Both are still in the midst of developing their ad formats and user experiences, especially in the mobile space. But in terms of brand promotion, interactive marketing, sales promotion and PR, Sina Weibo is better than WeChat. In terms of eCRM, WeChat is better than Weibo.” Insight: Should we view all social media users as potential consumers? KL: “Yes we can, as social media usage is the key reason driving e-commerce in China. The younger you are, the more important online shopping is to you and over 50 percent of the factors influencing online purchases comes from social media content and reviews online. This is a key trait of the millennials, i.e., people born in the 1980s and 1990s who grew up with the Internet. They’re China’s next middle class and consist of mostly impulse buyers and is probably one of the most emotional group who believe in sharing and supporting causes. If your content strategy revolves around social media, your social media strategy must be essentially a millennial consumer strategy to


c o ve R s to r y

drive conversions and lead generation.” Insight: Is the social media boom a bubble about to burst? KL: “Yes, it’s a bubble about unrealistic brand expectations, undefined business objectives and hype. Currently, social media agencies are under a lot of pressure from the client on many fronts, i.e., client’s wish to do auditing to make sure their fans are real, turn the current fan base into leads or customers and engage them further with brand content. These concerns are adding to the complexity of the work but the most dangerous challenge lies in the fact the even the most popular social platform, Sina Weibo, is seeing lower usage rates.” Insight: What’s the best free advice you can offer a foreign company thinking of launching a social media site in China? KL: “The best free advice for any foreign company thinking of launching a social media site is that they need to define their millennial and content strategy for their social efforts. In Chinese, the heaviest and most intensive users of social media, as well as those most easily influenced by it, are the millennial consumers born in the 1980s and 1990s. Instead of creating new content for social media needs at the start, they should look at all the advertising commercials, corporate videos and product testing videos done by the company in the past to see what could be used for reediting or simply reproduced with

…Over 50 percent of the factors influencing online purchases comes from social media content and reviews online.”

Chinese subtitles. Letting potential Chinese clients or consumers see your company’s past corporate materials addresses their need or desire to know more about your brand’s cultural heritage.” Insight: Who is the most interesting social media blogger in China and what makes him/her unique? KL: “I love Han Han, partly because of his non-conventional career and life as well as his subtle techniques of disseminating his social content to overcome government censorship. For example, he pioneered the technique of writing posts about government matters on a piece of paper and then scanning and

What’s Up with WeChat? WeChat is a text and voice messaging app that’s growing in popularity in China and around the world. • It was released in January 2011 by Tencent Holdings • In July, soccer star Lionel Messi became a WeChat product ambassador • In August, WeChat announced it had 100 million users outside China and 235.8 million globally • Main foreign markets are India, Malaysia, Indonesia and Singapore • Available in: English, Simplified and Traditional Chinese, Thai, Indonesian, Vietnamese, Malay, Japanese, Korean, Portuguese, Spanish, Polish, Italian, Russian, Hindi, Turkish • Available in the App Store for iTunes, Google Play Store for Android, BlackBerry App World and Marketplace for Windows Phone • New version WeChat 5.0 for iOS released July 2013 allows for binding credit/debit cards and mobile paying

september 2013

insight

23


She’s Got Some Following imaginechina

Yao Chen is said to have the most social media followers in the world

It is wishful thinking as clients treasure competency...”

uploading it onto Weibo as a jpeg. This helps his post avoid the government’s censorship mechanism, which is text-driven, not image-driven.”

F

ujian-born actress Yao Chen has set a record for having the most followers on Weibo – 51 million and counting – perhaps the most followed person on the planet. Justin Bieber had 43 million followers on Twitter followed by Katy Perry with 41 million and Lady Gaga with 39 million as of late August. She is no beauty queen or superstar but her acting ability has been credited for raising her to popularity among Chinese fans. “She was the first Weibo star. Her popularity grew along with Weibo,” said a China Daily reporter who covers arts. “She is not particularly well-informed or intellectual, but talks and acts like a normal person. I think that’s why people like her so much. She’s like the neighborhood sweetie.” She gained national fame after she starred in the TV show “My Own Swordsman” and later acted in films such as “Sophie’s Revenge” and “Two Stupid Eggs,” according to her biography. She works with the United Nations High Commission for Refugees (UNHCR) and has used her online popularity to bring attention to refugee issues in Chinesespeaking countries and to raise money to benefit disadvantaged children. In June, she was named UNHCR’s Good Will Ambassador in China. She is married with a son.

24

insight

september 2013

Insight: Are you concerned social media will make traditional advertising obsolete? KL: “With social media advertising focused on Weibo in China and Weibo usage and users falling drastically, it both social media and traditional advertising will be undergoing drastic changes in the near future due to fast changing consumer behavior and content consumption media trends. “What will truly become obsolete is the idea that digital/social is just another channel and clients prefer a one-stop agency for all their advertising needs because they prefer one point of contact for convenience’s sake. It is wishful thinking as clients treasure competency far more than convenience, especially when the demands on digital and social advertising are far more demanding than traditional advertising, where ROI and meeting targets are concerned. Clients want the reassurance that their digital and social media investments can either impact the business bottom line, drive lead generation or customer engagement, and these are the type of remits only specialist agencies can best handle. “This is supported by recent data. In November 2011, Avidan Strategies conducted a survey to assess the state of client/agency relationships and found that ‘only one in three clients indicated that the traditional agencies are doing a good job of adding digital capabilities, becoming integrated and evolving their business model to fit client needs. Agencies have tried to address this issue tactically, but shied away from reshaping business models to fit new realities of the digital marketplace.’ The price to pay for incompetence? The report concluded that ‘clients are lowering the bar of their expectations, client-agency relationships are becoming transactional rather than partnership-based.’”


c o ve R s to r y

Jeremy Goldkorn, Danwei Founder

The Dark Side of Social Media Thousands of shady online PR firms – known as ‘water armies’ – can manufacture comments on the Internet to make or break a brand, says Danwei founder

By Jeremy Goldkorn

shutterstock

B

ad news in China breaks and spreads at rapid speed across the Internet, whether it’s about an earthquake, a contaminated batch of food or bad customer service. A company’s reputation can be destroyed online by consumer complaints even when the story does not make the jump from social media to mainstream news. The public’s lack of trust in state-sanctioned traditional media means that a brand can be rendered worthless if enough of China’s half billion-plus Internet and smartphone users feel aggrieved, no matter what the newspapers say. Chinese consumers also place a high value on word-of-mouth product recommendations and user-sourced company ratings from online forums and microblogs, meaning that positive commentary on the Internet can have a direct beneficial effect on sales. The above statements would have been controversial 10 years ago, but it’s unlikely anyone in charge of public relations or managing a brand in China today would dispute that the Internet is a vital communications battlefield for companies. Naturally, an industry has emerged to exploit the Internet’s ability to make or break a brand. Marketers and public relations firms the world over have

found that “astroturfing” – the practice of artificially manufacturing grassroots behavior – can be a highly effective, if slightly dodgy, way to establish an online reputation or to besmirch the name of a competitor. In China, a media culture that has its roots in propaganda combines with entrepreneurial zeal to make for a thriving astroturfing industry. Judging from research conducted by Danwei, we estimate that there are more than 15,000 companies

september 2013

insight

25


in China offering paid commenting and deletion services. These Chinese style astroturfing companies are sometimes called “water armies” (shuijun 水军 ) for their ability to flood a social media website with comments – negative or positive.

‘Water armies’ Their services are much cheaper than conventional advertising. A one-page ad in Xinmin Evening News ( 新 民 晚 报 ), one of S h an g h a i’s m o s t p opu l ar n e w s p ap e r s , c o s t s arou n d RMB80,000. By comparison, a single 30-second evening commercial slot on China Central Television (CCTV) costs a

minimum of a few hundred thousand yuan, which is also the approximate price needed to advertise on big Chinese websites like Tencent and Sina. Water armies offer much better value for money (if water army tactics suit the company or industry) compared to conventional advertising. For example, below is a price list provided to our researchers by a commercial astroturfing firm based in Hangzhou, Zhejiang province. These prices are in line with the industry standards as far as we can tell from the more than 50 companies we have interviewed since we began researching manufactured Chinese Internet commentary in 2011:

imaginechina

Master Kong, a Chinese noodle company, was a victim of a black Internet PR campaign

26

insight

september 2013


c o ve R s to r y

imaginechina

RMB0.50: Positive comment on a forum or news story RMB6: Multi-user forum dialogue among three satisfied customers RMB100: Deleting a negative comment from a popular forum RMB400: Getting a Weibo microblogger with over a million followers to write a post promoting your company RMB1,200: Adding 5 million followers to a Weibo account RMB1,500: Home page story with photograph on major news website RMB2,500: Deleting a negative link on major search engines RMB6,000: Featured video on the home page of a major video website

Water armies can also be hired to conduct ‘black PR’ by attacking the reputation of competitors.”

Water armies can also be hired to conduct “black PR” by attacking the reputation of competitors. The Hangzhou firm had no standard pricing for black PR. The salesman said he would have to make a custom quote, as it depends on the target. One of the more expensive such attacks over the last year was the online assault on Coca-Cola’s Minute Maid brand of fruit juice in early 2012. On January 16, a Sina Weibo account called Guangzhou Discount Info Selection ( 广州折扣精选 ) published a post claiming that Coca-Cola admitted that its Minute Maid drink contained carbendazim, a fungicide banned in the U.S., and quoted an “expert” who said that the chemical causes brain damage. Within a day, the message went viral and was forwarded more than 25,800 times and received 3,600 comments, becoming a “hot topic” on Sina Weibo’s list of trending news items. A reporter from China Finance Net ( 中 国 金 融 网 ) contacted the person controlling the Guangzhou Discount Info

Entertainer Peter Ho was in hot water after a Weibo post

Selection account, who boasted that the effect of the Minute Maid attack was “good beyond expectations.” He said the target of the attack was very clear from the start – to take market share from a competitor. Another prominent brand that was victim of a black Internet PR campaign is Master Kong (Kang Shifu 康 师 傅 ), arguably China’s best loved brand of instant noodles. The company was founded in Tianjin in 1991 by two Taiwanese brothers, and listed on the Hong Kong Stock Exchange in 1996 as Tingyi.

september 2013

insight

27


The Chinese slang for a government-paid Internet propagandist, ‘fifty center,’ is at least partly accurate...”

Although the company’s board includes Taiwanese and Japanese members, Master Kong has always existed and operated only in mainland China. But last year, within a few weeks of the Japanese government’s “nationalizing” of the Diaoyu islands, which enraged the Chinese government and set off popular demonstrations across China, rumors began to circulate on social media site Sina Weibo that Master Kong was Japaneseowned and should therefore be boycotted. On September 20, Master Kong denied the speculation, but on October 8 a new rumor began to spread that Master Kong had been bought by Asahi Breweries, a Japanese company and that Asahi had donated 300 million yen for the Japanese government to buy the Diaoyu islands. The rumor spread rapidly on the Internet. In an interview with China Times ( 华夏 时 报 ) published in November 2012, a Tingyi representative alleged that one of Master Kong’s chief competitors, UniPresident (Tongyi Qiye 统 一 企 业 ), was the “manipulator behind the scenes” responsible for the rumors.

How do water armies operate? According to an exposé published and rapidly removed by censors from the website of the highly respected Caixin ( 财 信 ) business magazine in March 2013, water army companies routinely bribe the managers and officials of major news portals, search engines, Internet forums and social media sites. Such bribes and fees are the major operating cost for such enterprises. Aside from the tasks of maintaining good relationships with people at Internet and news companies and writing template posts for campaigns, labor costs are low as it’s mostly grunt work such as manually posting comments, registering large volume of “zombie” user accounts and recruiting new freelancers to make postings.

28

insight

september 2013

The Caixin article suggested that there are hundreds of thousands of people in China thusly employed. Most of them are college students and unemployed people who Caixin says earn somewhere between 30 and 50 Chinese cents (between three and five mao) for each post. The Chinese slang for a government-paid Internet propagandist, “fifty center” (wumao dang 五 毛 党 ), is at least partly accurate when it comes to the compensation for such work. Some 50 centers probably make a lot more than 50 cents a post. Another incident occurred last March on Consumer Rights Protection Day. CCTV focused its annual consumer product investigation on alleged discrimination against Chinese consumers by Apple. The criticism was magnified online by both fake grassroots accounts and by some celebrities. However, TaiwaneseAmerican entertainer Peter Ho (He Rundong 何 润 东 ), who has over 5 million Sina Weibo followers, inadvertently exposed the scheme by absentmindedly copying and pasting his orders straight to Weibo, including the instruction that his comment was “to be posted at around 8:20pm.” When this kicked off something of a storm, Ho later claimed that his account had been hacked. Yet no one investigated who may have paid him, and China’s media, Internet, PR and advertising industries barely reacted to the allegations of a coordinated smear on a brand.

Defensive measures The nonchalance that greeted the supposed smear of Apple tells you everything you need to know about how common black PR has become. Which raises the question: What can you do to protect your company or brand? There are only two defenses: First, you need to monitor the Internet and social media for mentions of your company or brand, as well as your competitors and other keywords depending on your industry. Second, a broad and persistent engagement with social as well as traditional news media will at least give you a platform to fight back as soon as a crisis begins, rather than when your reputation is already damaged.

In 2003 Jeremy Goldkorn founded Danwei as a blog and grew it into a research firm that analyzes the Chinese Internet, news media and Chinese government statements for companies that have investments or brands in China. The firm was acquired by the Financial Times earlier this year. Danwei intern Neil Thomas contributed to this report.


c o ve R s to r y

Chat,Work, Shop Young women in Shanghai share their shopping secrets and discuss their preference for online stores over malls

By Jenny Xu

M

oly Lu used to shop ‘til she dropped at her favorite retail malls across Shanghai. But nowadays, the Shanghai publicist gets her designer shoes, bags and other trendy items from the comfort of her living room chair, shopping on her computer or Smartphone. And when she’s not hunting for the latest bargains online, like her friends, she’s chatting with clients and friends on QQ or WeChat. Moly, 26, says she’s unable to calculate how much time she spends every day on various social media sites. But if a Nielsen report is correct, the average young Chinese consumer spends a third of their day on their Smartphone. “I have my work email on the phone, will check it first when I wake up and then check WeChat,” Moly says. “If I have free time, I just shop more. If I’m kind of busy, every minute I go and look up.” When pressed, Moly figures she spends at least one hour and sometimes up to four hours on social media websites and online shops every day. “I used to go to big malls like BaiSheng and BaLiChunTian as well as H&M, ZARA, those kind of brand stores. But later I just figured there’s everything online,” says Moly. As social media use continues to grow in China, businesses across the globe are trying to find ways to reach Chinese customers through Weibo and a number of other fast-growing e-commerce and social media platforms. Some companies do it better than others, but in China there’s growing pressure for companies to find innovative ways to reach consumers such as Moly who are shopping online at rates that exceed their counterparts in the United States

Moly Lu prefers to shop online

and other countries, according to various social media studies. According to published reports on Chinese shoppers, young Chinese women shop online and make purchases much more often than consumers in other nations, with total Internet commerce retail sales in 2012 commanding 6 percent of total retail sales last year, surpassing the U.S., where e-commerce takes up 5 percent of total retail sales.

september 2013

insight

29


In 2012, China raked in US$210 billion in sales, making it the world’s second-largest online retail market, according to McKinsey’s 2013 Global Institute Report, which also projects that more than half of working women will have an office job like Moly’s by 2020. Creative ways to encourage young women to visit their company website are working. Moly, for example, spends several thousand renmimbi a month on clothes and other Li Ting Ting optional items. Moly, who lives and works in Shanghai, was happy after she discovered a supermarket that delivered because it allows her more time to shop for other stuff. “I was going to the supermarket super often…now I don’t have to go anymore,” she says. Her other favorite online stores include Shopbop.com for brand name shoes

May Yu, left, with her friends Amanda Zhu, center, and Lily Yu

30

insight

september 2013

and bags and online retail giant Taobao for clothing, gifts and beauty products. “Overall, it makes me lazy to go shopping in stores,” Moly says about her online habits. “Especially in this fast-paced city, everybody is busy working and has no time to go outside and shop in stores. And it is always cheaper because the stores don’t have rental fees.” May Yu, 19, a tax major at Zhongda University in Guangzhou, also prefers to do all her shopping online. Her favorite iPhone app lets her locate specific clothing on Taobao if she snaps the QR codes on clothes hanging on a rack. May manages to spend up to RMB2,000 a month beyond necessities like food and school books.

Friends, shoes and Taobao Instead of hanging out with friends at malls sharing advice on the latest Steve Madden shoes, Moly now relies on thousands of strangers for their reviews. “I will take a look at the brand ranking on Baidu and decide which brand to buy first and go look for it on sites like Taobao,” she says. Her shopping is not limited to bags and shoes. When Moly needed a new refrigerator, she searched


c o ve R s to r y

Courtesy PricewaterhouseCoopers

Recommendations are a top reason Chinese consumers visit specific online shops Q: What prompts you to visit a specific online store? Friends or expert recommendation Price comparison website Looking for a particular brand/product I know this shop Social media interactions Search results Advertising Personalized recommendations on other websites Receiving a promotion via email or text Flyer or recommendation in-store China

Global

Diana Changkuon 0%

10%

20%

30%

40%

50%

60%

Sample: Global: 11,067 online shoppers; China: 900 online shoppers

refrigerators on Baidu, which has rankings of brands based on consumer reviews. Moly saw Haier had the best ratings and personal preference.” May says she reads about “roughly 30” reviews that take about an hour before she clicks the buy button. “If the deal is worth more than RMB1,000, maybe I just spend more time on it,” she says. “One to three hours per product.” Shopping online, however, comes with some risks, says Diana Changkuon, 30, an Ecuadorian-born marketing planner who has lived in China for about seven years. She points out that shopping on retail stores like Taobao can be risky. “I think with a site like Taobao, my expectations in terms of quality are very low and receiving a low quality item is pretty much unavoidable. Hence I will not spend too much money on something from there. I would not expect great quality from Taobao, but if I do get something that is nice (and I have received a few things that are great), then I feel like I can trust that seller and would buy again from them if I need,” she says. “Sometimes you get bad quality things, fake things.” Diana says she enjoys using WeChat and also Facebook to stay in touch with friends back home.

check out the push advertisements on social media sites. “Sometimes when I see the ads, I click them to look, and in looking at it, I buy,” she says. Ting Ting’s most recent purchase was a dress, which she returned after concluding that “it did not fit very well” because it was too short. “I’m very tall. It makes it difficult to buy things,” she says. Other consumers say they tend to avoid advertisements that appear on social media sites unless they’re unusual or eye-catching. Online retailers now also have interactive aspects to their websites, which Moly has been enjoying. “I still use Taobao as a shopping website, but sometimes I’ll just look up some recommendations, like how to make-up yourself, or something like that,” she says. “They don’t really promote products, but they tell you about the latest fashion this season.” In addition, Moly uses an iPhone shopping app called Mei Li Shuo that provides links directly to Taobao. “Sometimes when I’m free and I don’t want to spend money that quickly, I just go through it and see their recommendations and remarks, and they have links on Taobao and I just put them on save,” Moly says. “And later I go through it again and if I see it’s really worthy to buy it, I just buy it.”

If the dress fits… Just one of the several people interviewed for this article, Li Ting Ting, 25, a student at Hubei University, says she actually likes to

Communications and Publications intern Mark Choi contributed to this report.

september 2013

insight

31


industry insight B y E r i k a Wa n g

courtesy SIPG

Gateway to the World The world’s busiest container port is a key part of the government’s national development plan, officials say

J

ust a decade ago, fishermen in Yangshan, a group of small islands off Hangzhou Bay, used to go about their daily lives like they did for decades. The sleepy villages, located about a 30-minute drive from downtown Shanghai now sits at the centerpiece of the world’s busiest container port, the Port of Shanghai. Nowadays, 1,174 container ships depart to more than 200 ports across the globe. Shanghai Port comprises three container terminal areas in separate locations: Wusongkou Port at the estuar y of the Huangpu River, Waigaoqiao Port in Pudong and Yangshan Deepwater Port. Wusongkou is the oldest port and used mainly for domestic container vessels. Waigaoqiao was built in the 1990s to focus on international trade and logistics. Yangshan is the newest addition to Shanghai Port and the only deepwater port. Currently operating at its fourth phase, completion of the Yangshan Deepwater Port is slated for 2020, when it will be capable of handling 25 million shipping containers a year with a 20-kilometer wharf where 50 vessels can dock at

32

insight

september 2013

one time, port officials told Insight. Yangshan’s rise to world acclaim began in 2002, when Port of Shanghai saw the need to build a deepwater port that could accommodate massive container ships – as big as the Mærsk Mc-Kinney Møller, the lead ship of Maersk’s Triple E class of container fleet and the largest vessel in the world at 400 meters long and 59 meters wide, or roughly the size of four professional soccer fields. The Mærsk Mc-Kinney Møller recently made its maiden call at the Yangshan Deepwater Port. More than half of Yangshan Deepwater Port was built on reclaimed land. The first phase of construction required pumping 3,000 million cubic meters of mud to link two of Yangshan’s main islands, Greater Yangshan and Lesser Yangshan, and build a 10 square kilometer wharf in waters 15 meters deep, port officials said. And to connect Yangshan Deepwater Port to the mainland, 6,000 workers spent two and a half years building Donghai Bridge, which opened in December 2005 a s t h e w o r l d ’s l o n g e s t s e a b r i d g e . T h e 32.5-kilometer Donghai Bridge starts from Luchao Port in Nanhui district and connects with the Hulu


built on the basis of existing comprehensive bonded zones located at Waigaoqiao Port, Ya n g s h a n D e e p w a t e r Po r t a n d P u d o n g International Airport. When it comes to international routes, Yan notes that North American lines are the most important for the Port of Shanghai, which holds 21 percent of all market share in China on all transports to the U.S. and Canada, with some 250,000 20-foot containers of goods shipped monthly. The U.S. is China’s second largest trading partner, top export destination and fifth largest importer, he explains. Meanwhile, containers that are unloaded at Shanghai Port stay mostly in Shanghai and the Yangtze River Delta, while the rest goes to Jiangsu and Zhejiang provinces as well as other coastal areas, notes Yan. Most of the cargo exported from Shanghai Port comprises manufactured products, whereas most of the cargo exported from northern ports in China consists of raw materials, observed Shaw Wang, a logistics assistant manager at United States Steel (USS) China, during a recent port tour. He explains that USS, as a steel company, purchases raw materials and engineering parts in China. Most of the cargo is delivered to Tianjin Port, where the company books shipping space and then delivers the cargo to facilities in the United States.

…the port itself is considered by some measures to be the world’s fastestgrowing economy.”

courtesy SIPG

Highway at its north point, stretching across the northern waters of Hangzhou Bay to Lesser Yangshan Island. Entering into the Waigaoqiao Port area is an exercise in scale and orientation. Lined along the storage yards are rows upon rows of multicolored containers neatly stacked four to eight high, forming a mosaic of metal as far as the eye can see. Huge red and white gantry cranes hover steadily over the container piles as a small army of cars, minivans and container trucks ride up and down the nondescript lanes. In the distance, booming sounds from ship and truck horns can be heard at irregular intervals. Shanghai Port operates 24 hours a day, seven days a week. And with 38,000 staff – 21,000 fulltime employees and 17,000 port workers – and an annual container traffic increase of 30 percent every year, the port itself is considered by some measures to be the world’s fastest-growing economy. “Shanghai Port is a key part of the central government’s national development plans,” notes Yan Jun, vice president of port operator Shanghai International Port Group (SIPG), the body that manages the public terminals at the port. Yan added that the port will grow even more. “In the near future, our top priority is to make it an international shipping center. We wish to take SIPG from a big port to a strong port. We want to improve Yangshan as an international shipping center,” Yan said. “And at the same time, improve our logistics services so that our clients can make better use of our port and to serve their business needs worldwide.”

Free trade zone China’s 12th Five-Year Plan sets a goal of establishing Shanghai as an international shipping hub and financial center by 2020. Taking a step closer towards achieving this goal, China’s State Council in July approved a plan to set up a free trade zone in Shanghai. Although many details have yet to be released, the pilot zone would be

Staff at Port of Shanghai’s control tower work round-the-clock

september 2013

insight

33


To manage its 125 docks, 293,000 square meters of warehouse space and 4.7 million square meters of storage yards, SIPG implements a number of innovative technologies, such as gantry cranes that can handle twin 40-foot containers. Most container cranes can lift only one 40-foot container at a time or two 20-foot ones.

Spot checks With more than 1,000 shipping containers that depart the port every month, customs inspections are no small task. The General Administration of Customs requires that about 5 percent of cargo is spot-checked, notes Yan. Different cargoes have different requirements for inspection, for example, and Chinese law bans imports of solid waste that cannot be used as raw materials or be recycled by harmless means. All containers carrying such

34

insight

september 2013

contents require 100 percent inspection. Still, customs inspections are conducted at relatively short time frames, notes Yan. “Even in the most time-consuming example, as in the case of a container of metal waste, it would take about six to seven hours to complete inspection,” Yan says. If illegal items are found inside containers, they are sent back in their entirety to their country of origin, even if they are found amid allowable waste, he adds. He notes an example of a container that was sent back because of used vaccines – a banned item – found amid heaps of allowable plastic waste. Dwell time (time it takes for a ship to dock, unload and reload or move on) of container ships at Shanghai Port is also fast – typically less than 12 hours – depending on factors such as tide, throughput, a ship’s volume size and weather. Some larger ships’ dwell time can go up to 24 hours if affected by tide, according to Ding Songbing,


courtesy SIPG

Workers at Yangshan Deepwater Port

senior analyst at SIPG’s Strategy and Research Department. Customs inspections, while integral to the smooth operation of Shanghai Port, are but a piece of the giant engine that keeps operations running, and several challenges lay ahead for SIPG, Yan points out. “Every port in the world has its own different and unique characteristics so they all face different challenges,” he says. “For Shanghai Port, our terminals are scattered in different areas, such as Waigaoqiao and Yangshan and Wusongkou, so it presents challenges in managing it as a whole port.” “But I believe the real challenge that we face now is our client’s continuing changing needs,” continues Yan. “We as a port must continue to adjust to these changing demands and be able to fulfill them effectively. Our ability to adapt to our clients’ constantly changing needs is our biggest challenge.”

For one such client, General Motors, which last year imported US$1.5 billion worth of goods through the Port of Shanghai, an issue that it is struggling with is logistics, according to Keith Cole, vice president of Government Relations & Public Policy at General Motors China. “We have very complex supply chains, but one of our focuses going for ward is to simplif y that complexity and reduce logistics costs.” GM, which primarily uses Shanghai Port for importing parts and autos from North America, has been in China for 15 years. SIPG is taking notice. “We want to improve our logistics services so that our clients can make better use of our port and to serve their business needs worldwide,” notes Yan. “We have to be able to change our existing way of doing things to be able to turn from a port operator to a global logistics service provider.”

september 2013

insight

35

The U.S. is China’s second largest trading partner, top export destination and fifth largest importer…”


Stretch your marketing dollar at AmCham Shanghai Conferences and Events October 17, 2013 Manufacturing Summit November 1, 2013 Corporate Social Responsibility Conference December 4, 2013 Annual Government Appreciation Dinner

Fall /Winter 2013 Sponsorship opportunities are now available at signature conferences and events that offer comprehensive marketing exposure for your company. Sponsors who showcase their companies will receive: • Early bird discounted rates

• Exposure to senior level business executives from multinationals, small and mediumsized companies, individual entrepreneurs as well as government officials • Customized promotional packages to meet your marketing targets and budgets For more information, regarding the sponsorship opportunities, please contact Zoe Zhang at (+86 21) 6279-7119 ext 5667 or email zoe.zhang@amcham-shanghai.org

www.AmCham-Shanghai.org


executive women By mary rezek

Keeping That Edge

F

ifteen years after I stepped off the plane in Shanghai, I can say a lot has changed, but working here still comes with challenges, particularly for female executives. For Western women executives here, unlike in the United States, gendered opinions are vocalized in China and that can be a good thing. A senior HR director at a luxury IT retail company who is married with children told me recently about an issue that women must confront in the workplace in China. “Having very strong opinions about what it’s like being a woman and being a mother has led me to be more vocal about my personal situation regarding business travel and untraditional business hours when it comes to making calls with U.S. teams. I am more comfortable controlling the messages and negating any misperceptions about my ability to manage extensive business travel and meeting times. For example, traveling every other week is doable, whereas being away from my daughter for more than two weeks is not,” she said. I recently sat down with a number of women executives to discuss some of the issues they face in China and how they survive and succeed as female

leaders in China especially in the thriving metropolis of Shanghai.

Family and work Being a female executive can be an opportunity to demonstrate to your Chinese colleagues that you can have a family and run a company or serve in a senior leadership role. I often hear from expat women how difficult it is to keep their skills current. The issue is you can be seen as a “China expert” and face the risk that your technical skills would fall behind your Western-based colleagues. Here are a few ways to maintain an edge: • Consider executive education programs such as those offered at Wharton, Kellogg or Harvard. Check your eligibility to attend or create the opportunity to participate in an inhouse leadership development training. • While it is unlikely you will be able to find a China-based mentor, consider seeking out a former boss back at headquarters. • Become a mentor yourself. As mentors are older, more experienced individuals with a specialty, use your uniqueness as a female

A panel discussion on women in business hosted by AmCham Shanghai

september 2013

insight

37

Mary Rezek

A seasoned expat offers insights into how executive women can conquer workplace challenges in China


If you don’t talk about how good you are, someone else will gain the visibility.”

international executive to build relationships and trust with less experienced or knowledgeable employees.

Stay relevant All executives find it difficult to keep their skill sets relevant and applicable in order to stay marketable in the global workplace. Refining skills, keeping current and understanding market shifts are difficult. There is access to smart people in the expat community but peer sharing is limited. A CEO in the retail industry is concerned about finding a job in her home country as she has been away “for too long.” During visits to your home country, network as much as possible and attend an industry event, visit your company headquarter to remind colleagues of your name and what you do. Make time for lunch with former team members and cross-functional colleagues. Tell people of the excellent work you do. If you don’t talk about how good you are, someone else will gain the visibility.

Small stuff China is chaotic. The former managing director of Russell Reynolds Shanghai shared how “language and cultural differences make socializing surprisingly difficult [as well as] working incredibly long hours…” combine to create loneliness and frustration. In this mindset, the minutiae becomes overwhelming. Her advice? “When in one of the ‘downs’ it is usually an accumulation of little annoyances that build up until you want to scream – no shoes in my size, jostling on the street, pollution, another resignation – go on holiday immediately!” Many shared their ability to do great work was enhanced with time out to relax and recharge.

Change the rules One of the obstacles you will face here is the barricade that comes with being a leader, female and a foreigner. Breaking down this barrier takes

38

insight

september 2013

emotional intelligence, persistence, time and patience. As a Chinese company’s first in-house counsel, it was two years before the managing director truly felt accepted. As the only foreigner, staff kept her at bay. People “simply did not know what to make of [her].” She recalls the turning point. “More than two years after I arrived, and having still never been invited to join anyone for lunch or dinner, I was asked to teach English in the evening to employees who had to interact with foreigners in their job … after about six months with little interaction, I had them conduct a different type of exercise,” she said. She walked the class around the office holding a “free hugs” sign. As staff began to stand up and hug this senior lawyer, others’ excitement grew. From then on she used unique and sometimes self-effacing activities to break down the Chinese versus foreigner walls creating real human i nt e r a c t i o n . As k i n g f o r f o o d r e c i p e s o r commenting in broken Chinese are techniques that made employees laugh and realize she, too, was human. When seeking input, leaders take different approaches. The best tactic is to speak one-on-one with staff until they are comfortable. Then, discuss issues in larger groups. Being approachable creates likeability and trust. Over time, you can weave yourself into the company fabric and see your job satisfaction soar.

Ambivalence or ambition? Staff expectations about compensation is another issue that can impact both men and women. Discrepancies can lead to high turnover. The managing consultant for YSC Shanghai highlights the crux being “employees expect promotions every year along with healthy salary increases – regardless of performance.” Not promoting due to lack of experience often creates a distance between manager expectations and the effort an individual puts into the job. A senior director with an American sourcing company


gives a scenario where a promotion can create a major headache. “No matter how much time is invested in coaching or training, the popular belief is that if they spend enough [time] in one position, promotion is a given … add in workplace competition, and you get your internal recipe for disaster,” the director said. When someone leaves, don’t take it personally. Listen, understand and engage staff to unearth what they want. Female executives are often attuned to interpersonal nuances. Show interest in and engage with staff ambitions in order to create long-term loyalty and initiative within a team. Experienced China expats will have encountered many of these scenarios before. For newcomers, it takes patience and practice to navigate these scenarios. Every woman I asked said they would not be successful without the wisdom and advice provided by the seasoned

expat community – a ready resource of advice and humor. Consider joining organizations like the Expatriate Professional Women’s Society (EPWS), join an AmCham Shanghai committee or throw a dinner party. These contribute to creating a reliable peer network. Immerse yourself and you will reap the rewards of being a female expat in China. Usually, someone will have a more extreme China story that will make you laugh and realize you are not alone.

Mary Rezek has been based in China for 15 years and has more than 20 years’ experience designing and delivering leadership development and corporate learning experiences. Rezek is founder and principal consultant at Saatori Ltd. which builds inspiring leaders and teams to be effective in the world’s fastest-growing economies.

september 2013

insight

39


AmCham Shanghai

Author Series event with John Gerzema, co-author of The Athena Doctrine: How Women (And The Men Who Think Like Them) Will Rule The Future, on July 29

Business Council for Sustainability & Responsibility (BCSR) workshop on strategy development in CSR on July 31

AmCham Shanghai hosts the Michigan Economic Development Corporation (MEDC) delegation on July 17

Attendees at Design Mixer on August 13


Month in Pictures

SME Center series event on finding the right business partners in China on June 19

& Construction Committee Summer

Industry roundtable with shanghaiBIM on the use of building information modeling (BIM) on June 20

Marketing & Media Committee event on developing a personal and company brand online on July 10


inside amcham from the chair

A Time of Change

F

or those of you who spent July and August in Shanghai, as I did, you deserve some sort of reward for stoic survival of the hottest summer in recorded history. That story will be one for your memoirs. I am envious of those of you who were able to take a break in cooler places in the U.S. or in other parts of this planet. I want to share with you a peek under the hood of the annual Washington, D.C. Doorknock in September. A delegation of members, along with incoming President Ken Jarrett and several key staff, will spend several days in the nation’s capital in meetings with congressional leaders, administration officials in key agencies like the U.S. Ex-Im Bank and the U.S. Department of Commerce, as well as leading Washington thought organizations relevant to the needs of the U.S. business community in China. Among the messages we will bring to Washington are the overall success of American industry, the cautious optimism most of us have for our resp ective businesses in China and ways the U.S. government can assist in opening up market opportunities in China for U.S. goods and services. This is a time of change in China, from infrastructure to value-added ser vices, from huge household savings to the growth of domestic consumption and an evergrowing service sector. We will also be discussing issues, such as the highly anticipated Shanghai Free Trade Zone and a potential U.S.-China Bilateral Investment Treaty (BIT), which, if successfully completed, will open up more investment opportunities for both American and Chinese companies in our respective

Robert Theleen Chair of the Board of Governors

42

insight

september 2013

countries. We will also be soliciting assistance in the barriers we face in unfair competitive practices, in IT protection and in the seemingly intractable problems related to cyber security. While the obstacles faced by American c omp a n i e s i n C h i n a i n c re a s e , t h e market opportunities for our members paradoxically increase as well. From food and agriculture, to automotive to healthcare and consumer products and services, American companies continue to unravel the DNA of China’s marketplace. What AmCham Shanghai is pleased with is a growing membership of innovative companies and entrepreneurs whose ingenuity never ceases to amaze us. One of our newest members, an American manufacturer of high-value products in absorbent paper for disposable diapers and surgical disposables, gave me a tour of their new plant, a 200,000 square meter facility equipped with the most advanced robotics and a minimum amount of labor required. This is just one example of how U.S. companies intend to solve the related problems of growing labor costs and an aging workforce by capital-intensive production. There is a new China emerging. In all of the years I have lived and worked here, I have never felt better about the opportunities for American companies that are on track to develop an “in China, for China” strategy related, in large part, to improving the quality of life of China’s citizens. With the cooler fall weather soon bringing more vitality to Shanghai, our staff and our board are looking forward to working with all of you in making 2013 a successful year of growth in our programs and in our services to our members.


inside amcham B OARD o f g o v e r n o r s b r i ef i n g

Highlights from the July 2013 Board of Governors Meeting Nomination and Elections Committee Update Andrew Au, chair of AmCham Shanghai’s 2014 Nomination & Election Committee (NEC), provided an update on the annual election this fall for 2014 Chair and the Board of Governors. The first half of September is set aside for meetings with new and existing candidates running for Board seats for the next year. After several considerations, PricewaterhouseCoopers was announced with motion to approve as the selected auditor for NEC election results. Financial Report Helen Ren, Vice President of Finance and Administration, reported year over year new memberships were slightly higher versus the prior year and expenses were held in-check to allow net positive results. Revenue from the Corporate Visa Program (CVP) remains above plan given high demand in China for U.S. visa services, especially during the summer months. Net revenue remains solid, and overall the Chamber is in a strong financial position. SME Virtual Center Update Scott Williams, Vice President of Programs & Services, reported that Phase One for the SME Virtual Center site was successfully launched on June 30, 2013. New SME service requests have been posted to the site, including a major juice franchise service listing.

Additional service requests are developing. The service requests area can be used as a public RFP. Government Relations Update Steven Chan, Director of Government Relations, presented preliminary results from the Government Relations (GR) surveys, including focus groups and individual interviews, which will serve as a reference for development of further GR strategy. Members have voiced interest for more information on government policies and programs, deeper engagement with targeted government officials and organizations and more networking opportunities. In the Yangtze River Delta, members indicated a desire for increased government engagement and activities, particularly in Suzhou, Nanjing and Hangzhou. In Attendance Governors: Andrew Au, Jimmy Chen, Lienjing Chen, Sherman Chu, Keith Cole, Jim Mullinax, Robert Theleen (Chair), Eric Zheng Apologies: William Brekke, Curtis Hutchins, Kenneth Jarrett, Marie Kissel, Peter Sykes Attendees: Steven Chan, Patsy Li, Stefanie Myers, Helen Ren, Linda Wang, Scott Williams, Jessica Wu, Jonathan Shyu

The AmCham Shanghai 2013 Board of Governors Governors

Chair

Andrew Au Citibank China

Jimmy Chen FedEx Express

Sherman Chu Cisco Systems

Keith N. Cole General Motors

Pilar M. Dieter Solidiance

Marie Kissel Baxter Asia-Pacific

Chen Lienjing Pratt & Whitney

Peter Sykes Dow Chemical

Eric Zheng AIG Insurance

Robert Theleen ChinaVest

Vice Chair

Curtis Hutchins Eaton (China) Investments

september 2013

insight

43


Government Relations AmCham Shanghai Meets with U.S. Government Officials AmCham Shanghai and the U.S. Agriculture Trade Office (ATO) co-hosted the U.S.-China Economic and Security Review Commission on July 25 to discuss bilateral trade issues including food safety and agricultural issues. AmCham Shanghai Chair Robert Theleen welcomed the Commission and provided key highlights of the business environment in China. The delegation included Chairman William Reinsch, Peter Brookes, Daniel Slane, Katherin Tobin and former U.S. Senator James Talent. Company members from the food and beverage industry also participated in the discussion. Separately, on July 26, AmCham Shanghai’s Director of Government Relations Steven Chan briefed Michael Masserman, executive director for Export Policy, Promotion and Strategy for the U.S. Department of Commerce, on key highlights of the Chamber’s China Business Report, U.S. competitiveness in China and the SME Center.

Adopting CSR into a Company’s Corporate Strategy is Key: Workshop AmCham Shanghai’s Business Council for Sustainability and Responsibility (BCSR) on July 31 held a workshop on CSR in corporate strategy development. Lingzi Liu, head of Corporate Citizenship for Citi China, emphasized the importance of integrating CSR initiatives into a company’s corporate identity and mission statement as well as focusing on core businesses when devising a CSR strategy. Roy Zhang, senior manager of Global Citizenship & Policy at Abbott China, discussed how internal organizational structures Brian Liu, senior sustainability manager at Wal-Mart Global Sourcing, speaks helped Abbott better integrate during a workshop on CSR in corporate strategy development CSR into every aspect of its business to gain stakeholder buyin throughout the company. Brian Liu, senior sustainability manager at Wal-Mart Global Sourcing, noted that by establishing standards, auditing factories and providing suppliers with sustainability metrics, Wal-Mart has helped reduce greenhouse gas emissions, improve energy efficiency, increase compliance with local laws and raise working conditions.

Workshop Looks at How to Inspire Workers to Engage in CSR Activities AmCham Shanghai’s Business Council for Sustainability & Responsibility (BCSR) and Yangtze River Delta (YRD) Center on July 24 organized a workshop in Suzhou focused on increasing employee engagement through CSR activities. Kitty Ning from Suzhoubased AMD Technologies noted that corporate volunteer activities help employees discover and develop their potential in leadership and communications and increase employee satisfaction and involvement. Johnson & Johnson Medical’s Heidi Huang shared the importance of integrating CSR into corporate culture by having a comprehensive and inclusive CSR strategy that values employees’ leadership and service. From NGOs’ perspective, these value a company’s time and energy in volunteerism, which for many companies could be a rewarding and valuable experience, said Chung To from Chi Heng Foundation. Cathy Renmin from Enactus China noted that NGOs contribute to entrepreneurial development, especially for youths as they learn about business management and community involvement.

44

insight

SEPTEMBER 2013


Is your membership due for renewal? As a special summer offer, for a limited time we are pleased to offer all members free membership extensions. Renew your membership before September 30, 2013 and you will enjoy: • Three-month free membership extension for 2-year renewal • One-month free membership extension for 1-year renewal Three ways to renew your membership: 1. Visit www.AmCham-Shanghai.org/renew 2. Contact our membership staff for renewal assistance: Shirley Huang (+86 21) 6279-7119 ext. 5677 shirley.huang@amcham-shanghai.org Linda Wang (+86 21) 6279-7119 ext. 7124 linda.wangxia@amcham-shanghai.org 3. Email to renew@amcham-shanghai.org

www.AmCham-Shanghai.org


Download the Insight iPad App It's free and comes with extras! pollution-final.pdf 1 13-6-26 下午3:58

C

M

Y

CM

MY

CY

CMY

K

Visit us at: www.AmCham-Shanghai.org/Insight


Event highlights

inside amcham

SME Center Hosts ‘Finding Business Partners’ AmCham Shanghai’s SME Center hosted Chris Wingo, managing director of China Sage Consultants, on June 19 for a discussion on how SMEs can identify and work with the right individuals and organizations in China to achieve business success. Wingo discussed the problem of having the “cowboy mentality,” the tendency to go into business alone and without adequate preparation, which can ultimately lead to mistakes that could have been prevented through due diligence in selecting a partner. Unlike larger multinationals whose mistakes can be fixed with sufficient commitment of resources, small and medium enterprises usually do not have the same margin for error. For example, picking the wrong general manager could lead to being unable to take advantage of opportunities to grow a business in its early stages, which could be fatal to attempting to start a company in China.

Chris Wingo, managing director of China Sage Consultants, discusses how SMEs can identify and work with the right individuals and organizations in China

According to Wingo, businesses should make sure they conduct proper due diligence in selecting partners both inside and outside the company, including the right Chinese general manager and other personnel, to deciding which service companies, foreign firms, Chinese companies and outsource agents to work with. It is also important for SMEs to be clear about basic strategies and goals, such as establishing what the profit timeframe for a project will be.

During the event, AmCham Shanghai Vice President of Programs and Services Scott Williams also introduced the recently launched SME Virtual Center, a digital hub of services featuring provider and project listings, FAQs and SME resources. AmCham Shanghai members are encouraged to create their self-managed company profile on the platform to create more exposure for their businesses. AmCham Shanghai members enjoy premium-level access at no charge through June 30, 2014. Non-members may also register as subscribers. For more information, visit http://sme.amcham-shanghai.org/sme.

Young Professionals Forum Hosts Roundtable on Personal Branding

Peter Hill, director of career services at Hult International Business School, leads a discussion on personal branding

AmCham Shanghai’s Young Professionals Forum on July 9 welcomed Professor Peter Hill, director of career services at Hult International Business School, to lead a roundtable discussion on personal branding. Hill explained that the first step toward developing one’s personal brand is self-awareness. According to Hill, brainstorming and inquiring into one’s life for significant achievements can help achieve genuine self-awareness. He says his method, the Dependable Strengths Articulation Process, provides vital skills for successful job hunting – whether as a fresh college graduate or a professional in a mid-career transition. Job seekers, by recognizing their own assets, which are primarily built upon past experiences, may then successfully articulate their transferable skills to prospective employers.

Hill asked participants to remind themselves of any successful achievements from their life ranging from childhood to the past few months but highlighted three significant criteria: one must have enjoyed the experience, one must have felt a sense of pride and the experience must have been actively brought to fruition by oneself. Hill explained that by filtering these events in one’s own mind, one can hone the ability to successfully articulate achievements, aspirations and one’s professional trajectory. By formulating a list of one’s personal achievements and related abilities, Hill concluded that young professionals may significantly leverage their ability to make use of a “personal brand” whether conversing with a friend or interviewing with a potential employer.

september 2 0 1 3

insight

47


Committee highlights

inside amcham

Conference on Chinese Investment to the U.S. AmCham Shanghai held the 2013 Chinese Investment to the United States Conference together with the Shanghai Commission of Commerce, the United States Consulate General in Shanghai and the Shanghai Foreign Investment Board on June 21. With the participation of 150 attendees, this inaugural conference focused exclusively on outbound investment and provided a unique platform for U.S. and Chinese investors, business executives and government officials to understand the opportunities and challenges of foreign investment in the United States, connect with business leaders experienced in delivering investment success and explore opportunities for partnerships.

FDI Conference Sponsors Networking Sponsors:

Robert Theleen, chairman and CEO of American investment and merchant bank ChinaVest Ltd. and chair of AmCham Shanghai; Eugene Qian, managing director, head of Corporate and Investment Banking Shanghai; Ning Shao, chief executive, Center of American States; and Raymond Cheng, president and CEO of SoZo group, participated on a panel focused on the strengths of the United States as an investment destination. Panelists emphasized that successful investment often depends on ensuring a diverse team of professional advisors are employed throughout the investment life cycle to provide appropriate and timely guidance. Shao suggested that a direct approach to seeking entry into U.S. markets through a state representative office may be more efficient and cost effective, as opposed to going straight through the U.S. government. Tim Stratford, partner at Covington Burling LLP, presented on the process of securing government approvals for investment in the United States, in particular, approval of the Committee on Foreign Investment in the U.S. (CFIUS). CFIUS is a U.S. government committee that holds jurisdiction over business transactions that could have an impact on national security. To improve a proposed purchase’s chance of approval, Stratford recommended submission to a voluntary CFIUS review. “If you don’t have a CFIUS review and later on CFIUS finds out about the transaction, CFIUS can … force you to divest,” he noted.

48

insight

SEPTEMBER 2013

Gold Sponsor:


Committee highlights

inside amcham

Manufacturers’ Business Council Roundtable on GM Compensation Trends AmCham Shanghai’s Manufacturers’ Business Council (MBC) hosted a roundtable discussion on July 24 on general manager compensation trends, geared towards both expatriate general managers and locally hired general managers of multinational manufacturing companies in various fields. Cathy Liu, consulting director at Mercer, noted that there has been a rise in “local plus” packages as a pay approach to locally hired foreigners, localized expatriates and returnees. The “plus” in question can include education, housing and transportation allowances. The trend of offering employees the local plus option is also being extended to local executives as they transition from a local hire to more senior roles within an organization, she added. For general managers, Liu outlined their compensation in U.S. dollars on a range of levels. Most notable were the figures for general managers in the high-tech, retail and consumer industries in first-tier cities, all of which were the highest paid general managers. Liu concluded with a basic outline of typical allowance benefits for executives and at the general manager level which included housing and children’s local education, as compared to a locally hired foreigner.

For more information on AmCham Shanghai’s 22 industry-specific committees, please contact committees@amcham-shanghai.org.

september 2 0 1 3

insight

49


EXECUTIVE MEETING ROOM We asked executives what their favorite spot in Shanghai is to meet a client or talk business outside of regular working hours. Here are their top picks. Shirley Lu, Director – Asia Pacific Marketing & New Business Development, Rich Product Corporation Spot: The Bund

Spot: Whampoa Club at Three on the Bund Remarks: “It always makes me feel that I am back to 1930s Shanghai. I like to sit in the table facing the Bund and share about Shanghai development with clients/friends.”

imaginechina

Remarks: “When I host functions or business dinners, I like to take my out-of-town guests to the Bund. The Bund is so unique and iconic to Shanghai and is truly unbeatable for its night view, the river, the architectures on both sides and the endlessly fascinating history. There are several good spots on the Bund. I like to try different places at different times.”

Norman Sze, Managing Partner, Deloitte Consulting China

Frank Wang, Vice President, Legal & Corporate Affairs, Anheuser Busch-InBev APAC Spot: T8 in Xintiandi Remarks: “Food and drinks are good; it is spacious and quiet; not so many customers/guests and the second floor suits better for a group of people due to its privacy, peace and beautiful Chinese furniture.” courtesy T8

Eric Rongley, CEO, Bleum Software Development Spots: Di Shui Dong, Lost Heaven, Bar Rouge Remarks: “Di Shui Dong is a gritty Chinese restaurant where the food is unlike Chinese food back in America or Europe, but very delicious. Lost Heaven near the Bund also has amazing food that is unlike Chinese food back home. I take clients there for a fancier meal and then a walk along the Bund afterwards. Bar Rouge if they want to go to a bar because of the sophisticated customers and amazing views.”

Spot: Luna in Xintiandi Remarks: “The location is centrally located, it’s easy to explain to overseas visitors and transport is convenient. If dinner is further required there are many choices around the area.”

50

insight

SEPTEMBER 2013

courtesy bar rouge

Arthur Loh, Managing Director, China Business Development, RGP




Millions discover their favorite reads on issuu every month.

Give your content the digital home it deserves. Get it to any device in seconds.