Posts Tagged ‘China’
Monday, January 10th, 2011
On the heels of Gap’s logo change (and subsequent change back to the previous logo) this fall, Starbucks has released a new logo. Similar to past logo changes for Gap, Ikea, and even Apple, consumers are immediately expressing their dislike for the new logo. It might be surprising to many that those who are the most loyal customers and thus are expected to best support the brand tend to be those who are most upset. But if one considers that consumers develop relationships with brands, then this change to an integral part of the brand may threaten the customer’s relationship with the brand. Change is hard for many of us after all, so perhaps it’s no wonder those loyal customers are upset when “their” brand’s logo changes.
But unlike Gap’s return to its prior logo after customer complaints on social media networks, there may be an upside to Starbucks’ logo change. Its updated logo became more rounded, dropping the angular text in the previous logo. Rounded designs tend to be more appealing to consumers in Eastern cultures or those with an interdependent self-construal. If Starbucks continues to grow in these cultures, its revised logo, while perhaps upsetting to loyal U.S. customers, may appeal to their newest customers in these collectivistic markets, and that just may be where it matters most.
More on Winterich’s research on logo redesigns can be found online here.
Tuesday, January 4th, 2011
The New York Times recently reported on China’s entry into the U.S. wind energy market. “While proponents say the Chinese manufacturers should be welcomed as an engine for creating more green jobs and speeding the adoption of renewable energy in this country, others see a threat to workers and profits in the still-embryonic American wind industry,” The Times reports.
There may be some benefits and drawbacks from the Chinese entry into the U.S. wind market. The Chinese heavily subsidize their domestic solar and wind industries via low-interest loans and make it difficult for foreign competitors to enter China. That allows them considerable scale to lower costs. They already have gained significant share in the U.S. solar market, and this may happen for wind too. The U.S. government has subsidized wind mainly through the Production Tax Credit, but low or zero profits have reduced its attractiveness. Wind demand in the United States is driven mainly by Renewable Energy Standards in the 30+ states that mandate renewable energy. Chinese entry won’t increase demand much via lower prices because coal is cheap and natural gas is especially cheap now.
The Times article points out that foreign firms already make up most of the wind market. GE and Clipper have relatively small shares compared to Siemens, Vestas, Suzlon, and Mitsubishi. These latter companies import most of their high-value-added, high intellectual property components because there is a limited skill-base in the United States to make these components. U.S. manufacturing focuses on towers, nacelle covers, engine mounts, and blades, which are either low-value-added components or too big and too heavy to import.
The best that we can hope for in the near term is increased jobs for people who manufacture the low-value-added components, assemble turbines from imported components, and construct towers and maintain them. That’s not insignificant growth, however.
Wednesday, March 10th, 2010
Smeal’s first-year MBA students recently completed their global immersion week, in which they spend a week abroad to get a glimpse of the international economy and the particular challenges and opportunities associated with doing business in another culture and under different laws and regulations. Terrence Guay, clinical associate professor of international business, accompanied one group of MBAs as they visited Shanghai, China. He shares a bit of the experience below:
The economic transformation in China is occuring on a massive scale and in light speed. During the first week of March, I took 27 first-year MBA students to Shanghai to see these changes firsthand.
We visited one French and eight U.S. companies, almost all of them names that every American would recognize. Their reasons for being in China vary. Some, like GM and Johnson & Johnson, are producing for the local market. Others, like Caterpillar and Alcoa, are utilizing low-cost labor and exporting most of their products out of China. Some companies have more flexibility in managing their operations, while others like Bank of America and Deloitte face restrictions in competing due to greater regulations in the service industry.
Most students were surprised that, in a country of 1.3 billion people, almost all companies spoke of difficulties in finding highly skilled workers, especially at the middle-manager levels. Yet every company was enthusiastic about the opportunities that exist in China. Goodyear views the country as a blank slate where companies can re-position themselves, while Disney sees a promising future in selling merchandise to the two parents and four grandparents who dote on each child.
Walking and riding through the streets of Shanghai, one would hardly notice that over half a billion Chinese citizens cannot afford any of the products that these companies sell. The skyscrapers, lights, and bustle look more like New York or Chicago. But the few hundred million middle and upper income Chinese consumers are rapidly transforming this country, and taking the global economy along with them.
Thursday, January 21st, 2010
Smeal’s Rajeev Sooreea says that Google’s threat to leave China is a risky move that could damage its ability to succeed in China if it ultimately decides to continue operating there:
Google’s threat to exit China is not only an economic decision but also a key strategic one.
J.P. Morgan has estimated that Google could potentially lose $600 million in revenue if it withdraws from the China market. And such market share could be a boon for companies like Microsoft, which is there to stay, and Baidu, which already has 63.9 percent of the market, compared to Google’s 31.3 percent.
Whether Google leaves or stays essentially comes down to how it prioritizes its goals: market presence versus market growth. If Google leaves, it could still have an indirect market presence by transferring its China businesses to local players in exchange for equity stakes. But then it would severely compromise its market growth. Microsoft has had bumpy times with the Chinese authorities but its focus is on growth. For Microsoft, the China market is too big to walk away from. Over the years it has learned its lessons and Google will have its own if it stays.
It is important for foreign firms to realize two things: First, successful longstanding multinational companies in China are those that contribute to the welfare of the economy. Second, the business-government relationship and culture in China are far more complex than what one could anticipate. One of the premises on which Google is founded is freedom of expression. But freedom of expression is molded to a large extent by culture, and what may be valued and promoted in the United States may not be admissible in some other cultures, including China. Besides, in some cultures, freedom of expression may not be a social or political priority.
Google’s threats to exit China could be viewed in several ways. It could be real or strategic. If it is real and Google exits, it will lose a big market (but it may be honorable in the sense that Google was already struggling against competitor Baidu and it has upheld its no censorship philosophy). If the threat is fictitious and used to strategically force information out of the government, then it may land itself in a worst-case scenario, making its future growth in China more politically difficult. This could well be the case, too, even if the threat is real and Google stays in China.
For the company’s sustainability in China, threats seem to be damaging because the stick component of the carrot and stick is seldom welcome there. Again, the parallel is with Microsoft which used to send threatening letters to the Chinese authorities in its early years but then it had to change its strategy and adopt a friendlier approach. Today it is more successful than ever before.
On the other hand, China has to proactively do its fair share of the trade. Google simply withdrawing from China will not make the attackers go away. All across Asia, China is renowned for giving red-carpet treatment to foreign multinationals. If it wants to maintain its leadership, it should realize that the playing field is flattening out, and reinforcing its intellectual property laws would be a key factor for its own long-term success. Hacking is a deliberate violation of privacy and this is an area where the Chinese authorities need to do something more concrete. Only collaboration between Google and the Chinese government could be welfare-enhancing for both.
Wednesday, September 30th, 2009
A recent article in The Economist discusses President Barack Obama’s decision to impose a tariff on tires imported from China. Smeal’s Brian Davis weighs in on the issue by asking important questions about the repercussions of these actions.
The recent decision by the Obama administration to impose tariffs on imported Chinese tires– at first glance, (even second glance) seems “weird” from a rational economic perspective. Why would policymakers want to slaughter the golden goose of free-trade, especially when the domestic economy is still fragile following the events of the housing and banking crisis? Has Obama not learned the lessons of Smoot-Hawley?
Interpretation of the cause and effect of this action is probably more complex than a first-reaction rationale. On one hand, the tire tariff has relatively little effect on American consumers or workers. This is NOT Smoot-Hawley. Domestic producers have mostly abandoned the low-end tire market, with plenty of substitutes for Chinese tires provided by imports from Brazil and Indonesia. The larger question is whether or not this will spark a larger tit-for-tat trade war with China. An all-out trade war would have severe consequences for American exporters relying on access to the growing Chinese market for recovery. Will more special interest groups demand similar concessions?
The article highlights a worrisome trend, that import restrictions and other protectionist actions against China, by developed economies, have nearly doubled since 2007. Is the risk of sparking a trade war worth the chance that China will dismantle many of its trade barriers as a response to U.S. action?
One last perspective on these events is that the Obama administration has used the tariff issue as a bargaining chip to pressure China’s cooperation concerning Iranian nuclear ambitions. However, history has not been kind when countries attempt to use economic sanctions and other barriers to motivate political concessions. For now it’s a matter of wait, see and of course hope.
Thursday, April 23rd, 2009
Prabhu Dayal, India’s consul general in New York, visited Penn State’s Smeal College of Business this week as part of the college’s increasing focus on international affairs. Throughout the day on Wednesday, Dayal met with students, faculty, and administrators at Smeal and Penn State to discuss developments in India and around the globe. He believes that relations between India and the U.S. are historically strong due in large part to the recent civilian nuclear agreement between the two countries and a variety of other shared interests.
During a session in the afternoon with more than 25 Smeal MBA students, Dayal addressed a range of economic topics, including perceptions of outsourcing in the U.S.:
U.S. companies are outsourcing to stay competitive. Costs are lower in Bangalore and Hyderabad. While some jobs are being lost, at the same time more and more Indian companies are setting up manufacturing facilities here in the U.S. With its growth, India has begun to look outward, and it would be a shame if our partners move toward protectionism.
Duyal, whose career in the Indian diplomatic service spans 32 years and has included posts in Morocco, Kuwait, Dubai, Iran, Switzerland, Pakistan, and Egypt, also spoke at length about foreign investment in India vs. China:
No one is going to put more money in India than in China if the returns are higher in China. If we can match returns, certainly investment will come. But China has had a head start. Its infrastructure has been upgraded to much higher levels. We must catch up. We need 20 times more ports, airports, and road networks. Everytime you return to India, you can see the change. We are going in a positive direction.