China and Corruption

Spinning further on doing business in China and the main topic of the day and for the new leadership in China: Corruption. To be fair, they have other pressing issues as well, like pollution, income disparity, grassroots democracy.

However, corruption is tightly integrated into the whole society and not necessarily in the way that we think of it. For example, it's quite common that sales people do not have salary, nor 'real commission', instead they are advised/told to get the commission from the customer and the seller states what he wants. Say, you are selling software. The company expects to get $1,000 and the customer is prepared to pay $1,250-1,300. The salesperson can pocket $100-150 of the deal and $100-150 goes back to the buyers. The sales person avoids paying salary tax, the company reduces their risk and also not paying social security fees and the buying company probably gets a better price (as if all the costs would be in the product sale, the price might even be higher).

As any macro economist would tell you, this model does not really work well for the society overall as its arbitrary who gets the benefits of the 'tax exemption'. And maybe this is one of the reasons why the government now imposes that kids can not deny to take care of their parents when they are older. The system can simply not take care of elderly in China. But even economists in China argues that the tax burden (link is in chinese) might be too heavy for Chinese companies (as a side note, foreign companies really have to fulfill their duties in paying full taxes).

Another example of how this kind of system really destroys value is water wells. A few years ago, there was a minor earthquake in a city outside Beijing and the city's largest problem was availability of fresh water. But instead of drilling new wells, bottled water was brought from all over the country. Why's that? It turned out that a cost of drilling a well is actually not that high. Say $2,000, but the actual cost for the local government ordering wells were rather close to $15,000 as a lot of leaked out. Thus, cheaper to ship bottled water. 

And the level corruption is unfortunately so deeply rooted that it will not be possible in near-term to extinct corruption; though it is now far more dangerous to be corrupt. With the widespread use of Weibo, whistleblowers can much easier cause trouble. And there are many examples only the last couple of months of government officials owning 10-20 apartments worth tens of millions dollars.

But the Chinese Communist Party strives first and foremost for stability - more important than economic development, human rights and democracy. The China Dream mandates a stable China. I'm not going to dive into the subject of democracy, but stability as the number one objective have implications. One is how/if democracy will be deployed but more pressingly, corruption can only be dealt with to a certain level as the Party needs its people to stay intact.

One of my acquaintances was a very high-level ranked executive in the telecommunications industry. His reputation was that he was fair and didn't accept bribes. He seemed to work for the company's best interest. In comparison with others, he was less interested in personal benefits. However, a few years ago, my friend received suspended death penalty for bribes he took more than 15 years ago. He was caught because one of his young mistresses were trying to gain some personal benefits, using my friends name. And the internal affairs started dig and dig and it seems like everyone has something to hide.

Now, he is one of those who weren't really corrupt and still got caught. Normally, this has been a sign that the person is out in the cold, cut off politically. This is also totally clear in the case of Bo Xilai. But as the Party is somewhat rotten internally from corruption and authoritarianism, it will take time to clean up. This article in Caixin sums up the Bo Xilai story well if you want to read more.

For anyone doing business in China, stay out of corruption of course. First, you don't really know how to play the game and secondly, the implications of being caught are too negative for both individuals and the company. As the case with Bo Xilai shows, never trust guangxi, as you can't predict political power changes in China.

As an anecdote, I just want to highlight that isn't only foreigners who gets scammed in China. Chinese gets cheated too.. I came across a Chinese gentlemen who seems pretty solid and with a good experience in the telecommunications and energy industry. Now, he told me a story that was not very nice. He met a Swedish businessman who he started a JV with and at the end, the Swedish businessman basically stole his company, knowhow and products and started another company. Not only outmaneuvering the Chinese business man but nearly bankrupting him. Everyone needs to do Due Diligence. If done, he would have found that the Swede were convicted for economic frauds and tax evasion in Sweden and escaped to China to avoid prison.

Not easy to do business

Doing Business in China - Scary?

Read another entry in Svenska Dagbladet today (in swedish) about Swedish companies being cheated (again) in China and that 65%, according to Kroll Advisory, was up for a fraud attempt last year.

But when it comes to China, it seems like many people get blinded by the opportunity and seems to forget the basics. You meet a person, maybe through an introduction and all of a sudden, you have Joint Venture going together and transfers heaps of money but also technology. Two years later, you have nothing and been cheated and lost both the market opportunity and money/technology. Basic business rules applies in China as well as in Sweden where normal Due Diligence would make you avoid many mistakes. But as in Sweden, you can still be cheated but at least you have done what you should in order to protect yourself from the easiest mistakes.

The China Law Blog is an interesting piece of information that with anecdotes and real cases highlights basic mistakes we often do. Here’s a piece on ten basic mistakes.

Another common story the last year has been suppliers that haven’t received the payments despite the buyer paid from overseas. What happened? The buyer gets an email stating that payments should be done to a new bank account in another bank in another name. Strangely, the buyer accepts and pays without further questions. Why? Would you do that in your home country without proper documentation?

There are unlimited stories of how to get cheated but apply normal business sense and get yourself some trusted advisors. And yes, it may cost a few dollars but better safe then sorry instead penny-wise and pound-foolish

Volvo and China - Culture Disconnect?

I read an article a few days in Svenska Dagbladet by Jonas Fröberg about the main owner, Li Shufu’s comment about the new Volvo’s only have one problem and that’s the Scandinavian design. I won’t go into the debate whether or not Scandinavian design sells or not or whether Chinese consumer might buy it or not, instead I want to highlight the issues with Chinese management and Swedish organization.

Here, we have a proud Swedish organization expecting their boss to pay attention to what they do, their experience and wealth of knowledge. On the other hand, we have Mr Li, a self-made billionaire who can afford to buy one of best car companies in the world, Volvo, and he is obviously very proud owner. Volvo was acquired and to be run in parallell with Geely, which has been the case, and the focus, at least for Mr Li, was also to increase the sales in China for Volvo.

Mr Li has apparently not attended board meetings and here is, in my opinion, the real issue. He expects to be consulted anyway as he is the main owner and the big boss. He do not understand, not relate to international (Swedish?) way of doing business and running organizations.

The Swedish management (despite not only being swedes there) continues to work as before and it’s based upon autonomy, respect and consensus (am generalizing here) and as a world-class organization well-recognized internationally, Volvo probably thought they could continue to operate in the same manner. However, as painful it might be for us swedes, everyone do not understand our mode of operations, nor acknowledge it as an excellent way of working. Volvo has also been a company operating at loss for quite some time with different owners as well.

Instead, and here I do not know the full story, but keeping the Chinese boss fully informed, able to comment and inspect and influence, is incredibly important if Volvo is going to deliver successfully. Without that support, the management will quickly be replaced if numbers do not improve, particularly sales in China.

Furthermore, Mr Li should really handle this internally but the media situation is totally different in China vs Sweden and I am pretty sure that Mr Li do not fully grasp that situation so for him being honest is not meant to be harmful but may also believe that media do not have a strong impact or can be controlled.

Some serious work is needed internally in improving the sino-Volvo communications and understanding. Just a simple example, a Chinese person saying “yes” does not necessarily mean yes unless the person is used and fairly fluent in english language. There is no “yes” in Chinese; instead there is acknowledging or negations. If you are asked if you are hungry, you respond hungry or not hungry. Not yes or no.

I think the Volvo PV management naively have underestimated the issues with having Chinese owners.

Nokia again - The Microsoft risk

Came across this bit from the excellent newsletter of Rethink Wireless and it seems like the end is even closer for Nokia than what most of us thinks. After visiting Nokia at MWC in Barcelona, Nokia seemed confident, on the right track and that turn around is definitely around the corner. Rumors about some really cool phones where the acquisition of Scalado seems to be paying off well. Another 41MP camera phone, on Windows Phone this time? or maybe even better. 

"In an SEC filing last week, Nokia acknowledged the risk arising from a possible Microsoft launch of its own smartphone. It also lists other risks, including that Microsoft could sideline or even dump Windows Phone and rely entirely on Windows 8"

Can it be as bad as Nokia has invested two years in a new smartphone platform, totally ditched the two other alternatives, and that Microsoft may just dump the very same platform as nothing happened? And seriously, it should really be a viable option for Microsoft - it seems quite difficult for Microsoft to succeed in the fiercely competitive and fast-moving mobile phone market. And instead of both losing phones and tablets/new devices, Microsoft may need to cut the losses and stop Windows Phone and spend all their efforts in making Windows 8 competitive in the tablet market. After all, 2013 is the year when a crucial infliction point occurs: More smartphones and tablets being used than PCs and laptops and if Microsoft is losing the lucrative business market to Android and iOS well then Microsoft is going down fast.

On the opponents side to cut Windows Phone is Nokia, led by Stephen Elop, an ex-Microsoft boss who headed up the Office division and his right hand, Chris Weber, is also an ex-Microsoft manager with ample experience of enterprise business in North America. Now, these corporate heavy weighers should not have a problem to convince their ex-bosses to keep Windows Phone, no? I'd actually be surprised if Microsoft listens to Nokia as they already got what they need the most - reliable map data and in smartphones/tablets, it matters. Just look at Apple's debacle launching their own Map applications without Google Maps.

If no Windows Phone? Really, I find impossible to believe that you could build a competitive smartphone based on Windows 8 RT for the next coming years. Tablets, yes, but competitive smartphones, no.

If so, then Nokia really is at its end point and it's hard to see a way forward. On the low end side, Nokia gets strongly attacked by low-end Android phones, street price already hitting $50 and it will be tough for Nokia to demand premium prices for its Asha phones without a brand backing from its top-line devices. 

The SEC filing shows that the management and the board in Nokia actually fears the discontinuation of Windows Phone 8. Serious.

The Barcelona Take Away - MWC13

it was cold and windy and where I stayed, you could hardly be outside. Not much better weather than Stockholm. And MWC 2013 felt a bit similar, not much better than before. "Same same" sort of feeling.

The show moved from Fira at Placa Espagna to Fira Gran Via, next to Ikea and not far from the airport. The venue is far better as it was very spacious, indoors and never felt crowded even it was the largest ever (aren't they all?) and thus easy to find the companies you were looking for - though you couldn't find Google and Microsoft. Nokia, on the other hand, is back again and they had a very nice lounge. They didn't fill their booth with phones, phablets and gadgets, instead provide room for informal meeting and made it very human (it couldn't be because they basically had nothing to show, could it?). 

And seriously, MWC is all about to see and be seen, an extreme of networking where you start during breakfast (8am) and continue past midnight, every day.

Otherwise, Phablets was the buzz of the town. Is it a phone? Is it a tablet? Is it a notebook? With devices like Samsung Note 8.1, ZTE Grand Memo and Huawei Ascend P2, the term phablet was coined to mark the cross-over for small tablets with phone functionality and yes, the only thing I miss in my iPad is the phone functionality so maybe Samsung and others have come across a lucrative niche that Apple is ignoring (on purpose). Engagdet has an interesting article on the phablet subject 

And to spinn on phablets (even have its own wikipedia definition), there was an explosion of accessories for phones, phablets, notebooks ranging from Hello Kitty to more normal canvas folders for phablets. Krusell assigned half their booth to Motörheadphönes.

For quite some time, I've been part of and followed the mobile OS and I really didn't think that Firefox OS would stand a chance. While testing phones with Firefox OS installed, it's obviously still early days and reminds me about Qtopia. But seeing the traction, understanding the operator paradigm, the ease of use for webRTC, non-locking of app stores yet screen applications, leveraging HTML 5; Firefox OS may have a chance of becoming the third Ecosystem - instead of windows phone. Mozilla's strong presence in desktop supports the use of Firefox OS in mobile and could it just easily be adapted to non-mobile devices, such as a TV or Infotainment system in a car, then it certainly would have a strong opportunity to be a viable option for both device makers and application developers.

HTML5 though would provide a sluggish experience. I have a hard time believing that optimizing Gecko for mobile and build an OS around the web engine  will provide a better experience than a native OS where e.g. Android has native OS and a Java engine for apps. From an app perspective maybe acceptable performance can be achieved but not from an OS angle which will really affect the uptake on high end devices, where performance strangely enough really matters. The gap should be smaller as time goes by with the entrance and optimization of e.g. WebGL.

What's speaks in Firefox OS' favor is Mozilla as a non-profit organization and its sole focus on open source. Both advantages can also be seen as disadvantages as its needs to compete and succeed is less apparent from its competitors: Apple and Google.

The one that a lot of open source geeks, including myself, hopes to succeed is Sailfish OS by Jolla, a finnish startup that based its operations and software on MeeGo/Maemo. But with no support from any vendor or operator and an OS that also begins to feel outdated, it would be really impressive if they manage to succeed. Bear in mind, the first market to target is the most competitive market in the world, the Chinese mobile market, which is driven by a number of Android spin-offs and the most successful is Xiaomi.

A bit of a surprise, it seems like Sony is making a comeback in the handset market with a strong line up of phones, phablets, tablets and notebooks, paired with state-of-the-art accessories and Sony Home Networking/TV and of course, Playstation. I do think Sony is staged for a comeback; trimming the company, reducing number of sites, focusing on Tokyo and Lund for R&D and betting on standard Android should make Sony a strong contender. They should be able to increase their quite low marketshare and maybe become #4 or 5 in sales revenue (not volume), maybe already 2013. Only 1.7% in units shipped in Q4 2012 according to Gartner.

Another company that keeps impressing and will move fast forward is Huawei. Latest move is to setup an OS R&D in Finland and they recruited a Nokia Research Fellow, Mikko Terho, to run the center in Helsinki. I have strong hunch that Huawei will try to develop some kind of in-house lightweight OS based on open source standards to give them control of their future and also differentiate somewhat from competitors. It will be quite exciting to see what kind of products Huawei might ship in 2014 based on 'Huawei OS'. Huawei has also recently setup a modem R&D center in Lund. 

Watch and behold, Huawei will soon rank top 3 for mobile phone shipments as I expected they will be dominating low end android handsets shortly.

Walking around in Hall 3 passing Qualcomm enormous booth, all of sudden an equally sized booth appear, by AirWatch! Heard of them? I actually did as I was asked to go and visit them but for a company in the mobile device management space, it was over the top. But that was the whole point. According to company representatives, they wanted to make a statement to show who is really the market leader in MDM. 

I have never seen a 3D printer in real life before, but in the Nokia booth they set up a 3D printer to print Nokia covers. Amazing technology and if pricing comes down, it will definitely change how people can innovate and try new ideas on their own. Larger quantities and/or higher quality will probably for quite sometime require professionals and professional equipment, but there are tremendous opportunities for e.g. repair and replacement services where fixes can be done in no-time vs ordering from the other part of the world. 

My own personal takeaway is the little thing below which is an HDMI dongle running Android 4.0 and Airplay. Plug into to a TV, download the remote control to your smartphone and bang, you have a fully functional Android TV. Now, that's maybe not what you need but the opportunities that you could explore with this kind of setup is quite interesting. Just use Android as an application platform and you can design apps for the really big screen. The device should hit the stores late this year.

There was a lot of app developers but I didn't have the energy to check up all app developers. There are more and more for years that goes and with limited screen real estate, mobile apps or smartly designed mobile websites are the way forward. 

Next year, more of the same but soon trends like wearable computers (aka smartphones, tablets), google glasses and other ways of interacting with your phone hub may start to show up and will change everything, again. On the mobile network side, the laws of physics do limit how much speed and capacity can be distributed and new network paradigm will have to be deployed in order to handle gigabit transfers of data to devices. Maybe we will see gigabit transfer stations in the same way as we have electric stations for bikes and cars? I don't small cells is the best way forward for that concept. There are too many challenges. Instead, the mega-blast point centers for infinite data transfers on extreme close range could solve the issue more practically than WiFi, LTE and small cells.