Tuesday, November 03, 2015

A Different Way to Go to Market in China

When most US persons think of China, they see its vast, authoritarian central apparatus and it's one-party political system.  All roads lead there, and therefore to be successful in China, you must work directly with this apparatus.  This view is wrong in many (most?) cases.

The primary mission of the Chinese central government is stability.  Progress towards economic development, displays of military strength, even the kerfuffle in the South China Sea is boiled down to the continued stability of the system.  (The South China Sea is the primary route for CHina's growing need for energy imports, among other resources integral to their continued growth.)  With such an ardent focus on stability comes a strong disdain for risk, the lifeblood of innovation.

Stating the obvious, the Chinese market is different than most any other.  Cultural norms, economic structures, and paths to execution all make for a steep hill to climb.  Each of these elements (and more) also add risk to even the most proven ideas when brought in to this market from other regions of the world.

Rather than focusing on the central apparatus, instead look to the provincial level to support your go-to-market ambitions, ideally well outside the hubs of Beijing and Shanghai.  There you will find emerging leaders thirsty for risk, to help bolster their credentials for future roles within the national party leadership.

Given the emerging nature of the economy, the leash on what the provincial authorities can and cannot do is long, much longer than the US system.  Leeway can be found to experiment and iterate, especially when the focus is on further developing quality of life for the Chinese people.  Rules can be bent as long as the value is evident.  Time can be given to adapt.  Metrics and case studies can be developed, proving the success of the idea inside the Chinese system.  Once proven, the central apparatus can be approached for a larger rollout.

This is of course not the right path for all.  However, for many US businesses eyeing China, targeting provinces first can offer an optimal path towards accessing this vast and growing market.

Monday, October 19, 2015

American Biases

One of the core issues of working between China and the US is the cultural biases we both impose on our  personal interactions.  As with any bias, these biases are often born from experience, direct or tangential.  Sadly, when it comes to the American media, they are too often willing accomplices in reinforcing such biases, particularly when it comes to China.

In this case, when I refer to the American media, I am referring to the grand idea of great institutions of our day, that have developed a process and a skill to search for the idea of truth.  Objectivity is still the goal, if not always attained.  I know this is idealistic in this political climate, but I have seen first-hand an institution that represents this idea at its core.  Unfortunately, with this same institution, it seems the idea of objectivity is thrown out the window when it comes to China.

Take, for example, this article from today's Washington Post.  The idea that "China" is still conducting government-sanctioned cyber attacks is sexy, and it fits our perception of both an untrustworthy leadership (Xi), and an evil enemy (China).  There are two issues with such a report.  The first is that the decision to halt such attacks was made just a month ago.  To expect the government apparatus of 1.2 billion people to halt activities in such a short time is naive to the challenge of managing any large organization, let alone one such as China's.

The second issue is that the article does not attempt to define "government".  I wonder if Ms. Nakashima even asked her US sources to define the organizations they label as government sources of the attacks?  If she did, she does not report on their answer.  China is a nation of 34 provincial governments, hundreds of state-owned enterprises, among many other government operations.

The idea that the central authority dictates the micro actions of every government-tied organization throughout the land is wrong.  Americans (and the American media it seems) would be surprised to learn that the provincial authorities wield tremendous power, in some instances significantly more than even our state governments.

To assume that a cyber attack happening now is at the behest of the central authority is naive, and to not dissect these questions further as a a journalist is at best lazy, and at worst negligent.

Wednesday, December 17, 2014

Impact of Finance

I have been following this great multi-part project at The Washington Post on the declining middle class.  The latest piece struck a chord with me.  I lean left - I generally believe people are good, and that many need assistance when times are tough.  Assistance is not only necessary, it is a core component of what makes us human.  Fraud happens, but that should not distract us from helping our fellow neighbor.

I am now in the finance world.  I get more and more exposure each day of the machine that Mr. Tankersley describes in the article above.  So, knowing this, I have a quibble with this article.  It is extremely narrow-minded.  To measure the impact of finance solely by it's contribution to the economy is myopic.  Such an analysis negates all the externalities that occur given the growing investments in finance.

As I marinade on the system that is finance, we are benefiting elsewhere by the development that has occurred over the last few decades.  In particular, I argue that the growth of the internet as a foundational contributor to our economy is directly tied to the learnings, development, and talent cultivated throughout the recent finance evolution as Mr. Tankersley describes.

The metaphor used in the article, that finance is like a plumbing system enabling capital to move from those that have to those that need, is directly akin to how many describe the internet.  The exorbitant growth of the finance system in recent decades has led to new technology discoveries and an emerging talent pool - assets that are rapidly transferring to other industries.

Take data intelligence, for example.  Over the last decade, we have seen hyper growth in the amount of structured data, given the growth of the web and other advancements.  Vast datasets are becoming accessible for analysis in numerous industries, from commerce to education to even government.  Many of the technologies to handle these vast datasets are rooted in finance, as are many of the early people, transferring their knowledge and experience.  And growing the economy...

Monday, November 10, 2014

Structuring the FinTech Disruption: Apple vs. MCX < Apple + MCX

For anyone following the general disruption happening of the electronic payments space, or the Apple Pay / MCX war in particular, this exchange is an interesting data point.  There are two takeaways I see from this.

The first is that "it's on".  The siege by new players / models on the electronic payments ecosystem is starting to impact the conversation, if not the bottom line (yet).  Apple Pay and other technologies are beginning to pierce the fees framework that has long filled the coffers of the existing electronic payments system.  Today the more successful emergents operate as a friend to the existing players (but that will change).

The second takeaway is that the existing players do not yet fully grasp the siege underway.  The war is not Apple vs. MCX; it's Apple + MCX vs the status quo.  In this discussion, Apple Pay is being blocked by retailers because it is "too friendly" to the existing system, perpetuating the existing fee structure rather than attacking it.  MCX and it's parter retailers understand that the existing fees structure is outright robbery given today's technology, and they are taking a stand.

The Apple Pay / MCX battle is one between two armies on the same side, each with different strategies and assets.  Apple doesn't win by taking a portion of the existing fee structure, and neither does MCX.  They and the other disruptors win by decimating the economics of the current system.  Apple is building an army of users before striking.  MCX already enjoys its army of retailers and sees Apple as a threat to this asset.

Battles will be lost, but the war will be won.  This salvo may not strike the death blow, but more attempts are coming.  The existing electronic payments system is bloated with technology that has been displaced with significantly cheaper, more secure options.  Significant value that the current system enjoys will be returned to the consumer (through lower prices), retailers will retain some as will new players within the system (e.g. Apple).  The days of merchants paying 2 - 4% per transaction are numbered.

Tuesday, October 21, 2014

Phases of Data Intelligence: An Update

A couple of weeks ago, I wrote about the Phases of Data Intelligence.  I just came across Benedict Evans' presentation at GE's Mind + Machines event.  He had a more simple yet similar version of the same idea.

His version is:
  • Build the data stream
  • Ingest the data within the enterprise
  • Do something useful
He has a plethora of "3-bullet" nuggets on the Industrial Internet. Worth a watch if you are in to that sort of thing:

Monday, October 20, 2014

Network Effects, Compounding Interest and Inequality

I have seen a rash of "the rich are getting richer" stories in recent months, because, well, they are. But most articles I have consumed focus on tax policy and other mechanisms that have for the most part assisted in this shift of wealth over the last few decades.

This one took a different tact, and it got me thinking about the impact of the concepts of network effects and compounding interest on inequality.  This article focuses on the environmental effects of having wealth on a child's development.  Interesting, but there is a larger ecosystem at play that further expands the gap between rich and poor: the network.

I am fortunate in that I grew up in the US in an upper middle-class family.  I did not have a ready-made network for me to access, but I had other assets that have allowed me to develop my own network much more rapidly and effectively than many.  Principally, my network began because I had more flexibility as to how and when to earn an income.  Paying for college was not a worry, and my living expenses were subsidized (thanks Mom & Dad!). affording me to take an unpaid internship at The White House while in college.  This opportunity not only began my career, but also began the development of my network that continues to compound and pay dividends.  I have reconnected with several folks I met during those early years over the last year, as I develop my latest business.

Providing opportunity is one component of a much larger ecosystem.  Those in need also must have the means and flexibility to fully exploit opportunities.  Policy, philanthropy and other initiatives that attempt to address inequality have to look at the entire ecosystem.  Failing to do so may lead to exponentially less potent effects.

Thursday, October 09, 2014

Industrial Internet

I have been following the "internet of things" idea as it has emerged over the past few years.  I own a Nest.  I want a Sonos.  Etc, etc., etc.  But, I've always struggled at understanding the underlying value of such systems.  I haven't seen real problems solved by these devices yet.  I have no doubt that it will come, but the space is just too immature at this point.  Enter the "industrial internet".

I had the fortune of attending the Colorado Innovation Summit in Denver back in August.  There, GE's Jeff Immelt spoke of their significant investment of what they call the industrial internet.  Essentially, this is the enterprise version of internet of things, or industrial IoT.

My "ah ha" moment was the realization that opportunities in industrial IoT can win simply with a clear ROI.  And win they are - Mr. Immelt spoke of several examples already in play among their businesses where they are applying industrial IoT to deliver double-digit returns.

The same is true on the consumer side, but the definition of return is so much more difficult given human behavior.  And how that return is delivered on the consumer side can take so many forms.

However, among key industries, incremental improvements in efficiency have significant impact on profitability, given the minimal cost of implementation of many industrial IoT concepts.  These investments will have a huge impact on every industry and the global economy in the coming years.

Source: GE Estimates