Midway Takeaways

I'm flying to Hong Kong as I write this. Below are several snippets and takeaways from my trip thus far.


We’ve completed travel through two of our three cities. At the end of each visit, Mabel asks the group to share your perspective on our learnings from both business and social perspectives. Today (5/16), while crowded near our gate in Shanghai’s airport, I shared mine.

For almost three years I had the pleasure of living and working in Washington, DC. Every time I came back to Washington from a trip, I made myself drive into the heart of Washington, crossing over the Potomac and getting a crystal clear view of the Lincoln Memorial, the Washington Memorial and the Capital Rotunda. I would drive right up to the west side of the Capital Building before circling around it to head to my humble apartment on Capital Hill. Why did I do this? It was simply my way to take in the awe of Washington. To feel the power of American government. It’s splendor and magnificence.

Visiting Beijing, I had the same feeling. You can certainly feel the power of government. “Official-dom” is ever-present. Armed guards and gates. Flags. Statues. Enormous monuments and open spaces. It felt the same as Washington. But just like in the states, once you leave Beijing, it’s difficult to have that same feeling. You don’t “feel” Chinese government in Shanghai just like you don’t “feel” American government in New York. That is mostly because you can’t see it. The symbols, statues and official-dom are not there to behold. But clearly, what we learned is that government – even in Shanghai – is ever-present in business. And not only must business develop relations with the central government, provincial and local government must be factored in as well. Government is behind the scenes. It’s in phone calls and lunch meetings. It’s in contracts. In negotiations and business deals. We heard from one CEO that many multinational CEOs wish they could spend 50% of their time working with the various levels of government. It is part of the business process and if an organization maintains strong productive relationships with all levels of government, business will generally blossom. What is “productive”? A relationship that is win-win for both sides.

Same Principle Applies
In planning my trip, I packed a short narrative written by my uncle Laurence Sprunt. Uncle Laurence, through his own will, gathered together some wise and interesting stories about life as he has seen it – some humorous and all instructive. In one of the stories, he talks about how he and a friend headed west to California to develop relationships with lumber companies to represent their lumber on the east cost of the United States. How ironic. Here I am, many years later, heading east to make business contacts in China reading a book from my Uncle, a graduate of UNC with a degree in “commerce”. The world has changed so much in his lifetime but one thing hasn’t changed about Uncle Laurence. He’s one shrewd business man and still to this day has the first penny he’s ever earned in his pocket. So while touring through the streets of Souzu, I couldn’t help myself when I came across this sign – evidence of a good marketer and just like Uncle Laurence, and Chinaman who knows how to drum up business.

Sweet Candy
I can’t imagine moving through China without a guide. They help with translation and logistics but also the better guides really know their history and the traditions of this country. And in Shanghai, we had the best experience with Candy, pictured here. She was not only thorough and easy to deal with but she was also quite funny. On day one, someone sneezed on the bus. She said to us – in heavy Chinenglish: “You know Chinese tradition about sneeze? Chinese says that one sneeze means someone thinking of you. Two sneeze mean someone cursing you. Three sneeze? You’re sick.”

Another one from Candy: “You know what national bird of China is? Building Crane.”

And finally: “You know what national flower of China is? Peony. Some people, they think national bird is carnation. Get it? Car-nation.”

We will miss Candy.

A Lesson in Brushing Teeth

Harry and Ella Reaves, you’ve got it made. We know its such a drag to brush your teeth twice a day. But imagine not being able to brush your teeth with the water from the sink? For the entire trip, I have brushed my teeth with bottled water. And I’m incredibly efficient. I can get about three brushes in with a small bottle. China is a developing country and drinking water out of the sink can’t be done. So brush up kids and be grateful. You’ve got it made.

The Evening Class

Those of my classmates following our trip, we’re having a great time. I think I speak for the evening group in saying that it’s been a fun experience meeting and traveling with the day and weekend students. We’ve shared some good stories about professors, careers and other life matters. But in addition to the folks on our trip, we’ve met alumni – both ex-pat and Chinese – in every city along the way. They have been fascinating and have provided a whole new level of perspective for our trip. Meeting students from the other Kenan-Flagler programs has been a rewarding experience in this global emersion. It has also proven Kenan-Flagler’s prominence throughout the world – something that we can all be proud of an leverage in the future.


Stay tuned.

Corporate Shanghai Two

Yesterday (May 15th) we ventured out for our last corporate tour of Shanghai visiting Corning, Lord and hearing from ChinaVest.

The Corning trip was fantastic. We heard from the CEO of Corning China and I found it to be the most candid discussion about doing business in China we have heard to date. He talked a great deal about how most CEO’s in China he knew spent, on average, 30% of their time on government relations and wished they could spend at least 50%. Government relations in China is far different from what we know in the US. The contract lobbyist model would never work in China. It’s too confusing. Chinese officials – public and private sector – need a strong sense of trust and it takes time to build that trust with them. Another major message that he left us was two fold. One, the intellectual debate over whether or not to do business in China is long over. Two, you can’t put your toe in the water in this market. When you decide to jump in, you must do so with gusto and the operation on the ground must have the entire support of top management at home. This explains why Corning has enjoyed such a strong presence in China and will continue to grow and invest here.

After a tour of the Corning fiber production operation, we left for Lord. Lord manufacturers a variety of vehicle parts and has some form of part in every car produced in the world. I found Lord’s presentation about being an ex-pat in China most interesting. Our presenter, the head of operations at Lord China, has been in the country for two years with a wife and children. His take: “An ex-pats assignment is an adventure, not a fairy tale.” The quality of healthcare in China varies greatly. We’ve heard from most ex-pats that if you have anything beyond a broken finger, you need to get care in Hong Kong. He pays about $4,000 US dollars for a townhouse and $21,000 for his daughter to attend an international elementary school. I asked him about practicing religion in China. He happened to be practicing Catholic and he is able to attend a special mass for foreigners on Sunday’s which requires a passport for identification to get into mass. High mass for Chinese Catholics is practiced on Saturday’s.

Finally, we came back to our hotel for a presentation from ChinaVest, a merchant and investment bank in Shanghai. Get this: in April alone, more than 5 million stock trade accounts were opened in China. The markets are red hot and so is business. Consider construction. On average, one building a day goes up in Shanghai. Every year, China is building the equivalent of two cities of Boston. Interestingly, we learned that the reason for the incredible Shanghai skyline stems from the fact that the former mayor of Shanghai is an architect and when the building boom began, he invited some of the world’s most prominent architects to design some of the most incredible skyscrapers you have ever seen. Infrastructure will be a big play over the next five years through China’s “Go West” initiative. In the private equity markets, investors are paying huge premiums – 31 times equity value/EBITDA, on average. Sixty-eight private equity funds are operating in China and invested $12 billion by the end of last year. Sourcing deals in China is very difficult. You make money typically when you buy, not sell. Due to a lack of transparency, due diligence and valuations are also challenging. Also interesting is China’s social welfare investment. To accommodate China’s large aging population, the government has set aside $200 billion for a social security fund. More than likely, they will invest the fund in US and international blue chip stocks making the IBM’s of the world quite happy. A big question in our business discussion is whether or not the market will crash. Many believe it has to but worry about what that will do to world markets. Considering the ripple effect the Shanghai Exchange caused in February, it could be huge.

We ended our night with a trip to the Shanghai circus which had a very similar feel to Cirq. Afterwards, we headed out to a night on the Bund – an incredible waterfront property with lots of bars and a breathtaking view of Shanghai. We celebrated Kate’s 30th birthday.

Today is a travel day. We take a bullet train (travels 250 miles per hour in about nine minutes) to the airport and then catch a flight to Hong Kong. Objective #1 in Hong Kong: get fitted for a hand made suit.

Stay tuned.

Corporate Shanghai

I apologize, we've been very busy and I have been unable to post as often as I had planned. (We've also discovered a strong nightlife in Shanghai.) Plus from here until we leave Hong Kong, the hotels are charging us for web access. Rest assured I am reading your posts but will more than likely not respond to all just to keep costs down.

I think we have all decided that Shanghai stands in stark contrast to Beijing. Beijing’s blend of government and corporate sectors is only one difference. Cultural differences also exist and western influences are everywhere – from Starbucks to the way people move through the streets.

We had a banner day (5/14) which started with a bang at Citi. We were addressed by the CFO of Citi for all of Asia as well as the head of corporate training for the organization. The presentation was fantastic and considering Shanghai’s rising prominence as the financial center for China, it was the perfect start for our trip here. Some interesting perspectives were shared. Regulators in a developed economy are typically very confident and prioritize initiatives. Regulators in developing economies are typically insecure about the future and are generally more willing to try new approaches to financial practices. If the practices work, they usually allow more of them to happen. In China, stable financial markets are very important. Concern for overheating is huge and the regulating authorities will stop anything that will potentially destabilize the markets. Also of interest: a credit bureau or organized credit rating system does not exist in China, nor will it ever. According to Citi, authorities will never allow the collection of data on their own people in a repository outside of their control. Doing business in the banking industry without a credit rating is a difficult challenge to overcome.

Our next stop took us to the Shanghai Stock Exchange. You may recall that the SSE ignited a dip in markets throughout the globe earlier this year. About 850 companies are listed with a total capitalization of over $900 million US dollars. A lot of the discussion with our guide centered around the lack of information for individual investors. Unlike the US, information is far from perfect and many investors are unskilled at making good decisions. That does not, however, stop them from investing. Right now, they are up 240% over the last two years.

We then transitioned the day into a manufacturing tour visiting Eaton and Atlas Copco.

“There lies a sleeping giant. Let him sleep. For if he wakes, he will wake the world.” – Napoleon 1803.

This quote graced the front page of the presentation from the CFO of Eaton’s Chinese operations. And how true. The giant is awakening, growing at 10 to 12% each year and according to Citi, if you count what some call the "cash market", the growth rate is likely 13 to 14%. Of greatest interest to me was the discussion around attracting and retaining top talent in China. This has become a consistent theme on our trip. Eaton recognizes that their talent is the most expensive asset of the 21st and they know it won’t change. They believe that people want to work for strong brands and a commitment to internal branding at Eaton exists. We were also introduced to another concept: “Guanxi” (guan – zhee). Guanxi is a Chinese term that describes how to “network” to do business in China. It’s a way to build trust. Essentially, you don’t really talk business for the first three or four meetings with a prospect. You build a friendship and confidence over time before you even discuss business.

Finally, we ended the day with a visit to Atlas Copco. They are a global manufacturer of huge machines like mining equipment and compressors of many types. It just so happens that the VP of their operations, Mangus Gyllo, is an alum of UNC School of Business, the name Kenan-Flagler operated under before the school was renamed. He was fascinating. As a manager of their Chinese operations over the last 9 years, he is convinced that it all comes down to good people. He has a theory – which I completely agree with – the throughout the world good and bad people exist regardless of where they live. Again, the challenge is finding and then retaining good people. Human resources is a defining challenge for Atlas Copco in China and for that matter – all of the companies we have met with thus far. Atlas Copco believes in two main things: train your people well and ensure that you develop Chinese managers for Chinese employees.

Tonight we will travel to South Beauty Restaurant for an alumni dinner with several Kenan-Flagler alumni in Shanghai.

I’m beginning to detect a theme in our trip. Recruiting, training and retaining good people is a tremendous challenge. There seems to be a huge opportunity in China for firms that specialize in the HR side of corporate life.

Stay tuned.