iPhone...Made in China

Hottest gadget + Hottest country = Prosperity

On the most southern tip of China, just across the border from Hong Kong is the Hon Hai Precision Industry Co. (Ticker: TEF). That typically dull industrial name hides that fact that the company is one of the world's leading electronics manufacturers and a key partner to many household names like Apple, Motorola, Nintendo and Sony Playstation.

$40 billion and growing...

What can be said about this Taiwanese company that has grown revenues by over 50% a year for the past decade to $40.6 billion revenues in 2006 alone? Billion! Imagine that kind of money...that's close the price that Cingular paid to acquire AT&T Wireless back in 2005! (Or to put it another way, Hon Hai is expected to add another $14 billion in revenues this year...the same as the entire sales of CBS Corp.!!)

Expand your share of the Value Chain

How has Hon Hai managed to grow (and keep growing) at such a rate when its rivals have struggled to manage overcapacity? I mean, Hon Hai is larger than its 10 closest competitors combined?! By leveraging the fact that it can produce many of the components that are used in its clients' products and therefore create off-shored sub-assembly production lines that are far more efficient than those of its clients. This encompasses a whole heap of manufacturing and production management acronyms like CEM, EMS, ODM and CMMS.

Dell case-study

Back in 1995, when Michael Dell first met Gou, Dell and other PC manufacturers bought the components and assembled them in their own factories. That is, until Gou built a production line that allowed Hon Hai itself to do this - everything from making the PC steel cases to building the completed PCs - thereby reducing overall costs without reducing profit margins.

Also, it doesn't hurt to have a firm grasp of expenses either. One Hon Hai executive joked that the founder, Terry Gou, is "worth $2 billion in nickels and dimes". Although today, that number has grown...Gou is personally worth about $10 billion!

Where next?

The phenomenal Taiwan/China growth story has been achieved by taking this strategy horizontally across other Computer, Communication and Consumer-electronics industries like digital cameras and LCD panels.

So where's the next growth area for this Taiwan/China partnership? Expect a 'Made in China' label on the next-generation of medical equipment soon.

7-foot something...Chinese are taller than Americans

What's in the food?

Wow, what are they feeding the kids in China? Yao Ming is the 7-foot 2-inches (2.26 metres) tall NBA star for the Houston Rockets. He's been in the news this month as he's marrying his sweet heart, another basketball player from China, who comes in at 6-foot 2-inches tall (1.9 metres)!

Ok, these two aren't your average rice-yammin' Chinese citizens, but NPR noted that the Chinese are gaining height, whilst the Americans are stuck at an average 5-foot 9-inches! And we all know the advantages that tall folk have over the height-challenged...

It's gotta stop

It's was interesting to read that, even though Yao Ming is fairly traditional (he got married back at home and close to his fiance's hometown), he is trying to bring attention to something that has been worrying me...The demand for exotic animal parts for Chinese cuisine due to folklore or superstitious beliefs.

The NBA Houston Rockets centre has been active in environmental protection and last year Yao Ming pledged to stop eating shark's fin soup which is considered a Chinese delicacy. The shark's fin is the only part that is valuable ($300+/lb) so fisherman just slice off the fin and dump the shark back to drown in the sea - a practice called 'finning'.

Ironically, this dish would've certainly been on the wedding banquet menu as it's a sign of wealth and prestige. By speaking up, Yao Ming has raised the awareness of the cruel and senseless practice within and outside of China.

Avril goes to China

Avril learns Mandarin

China Radio International is the only station broadcasting from Shanghai in English I believe. That's where I found some news about Canadian pop punk queen, Avril Lavigne, arriving in Shanghai to play her first solo Chinese gig.

It's a smart move on her part considering some say a larger proportion of money is made from concerts etc. than record sales now. Let's assume only a very small percentage will legitimately buy Lavigne's tunes in China, but anciliary revenues from the world's largest market could be huge(r).

Has anyone seen a blonde girl with an entourage...?!

The Shanghai Youth Daily said that: "the punk singer arrived at the city secretly, and that even the local media and hard-core fans at the airport failed to see her."

Don't make me laugh. Oh, and which local media took the pics?! Come on - unless a moody white rock chick being chaperoned by some burley white and black body guards is a normal occurance in Shanghai's Pudong International airport I think Lavigne would've stuck out like a sore thumb!

Avril in Mandarin?!

AOL Video is hosting some video clips of the concert. I didn't watch, but may be it includes her Mandarin version of "Girl Friend". If not, here it is below...hey where can I buy the bootlegged concert VCD/DVD...?! Hahaha.



Loving this



Avril in Cantonese

Mattel recalls 9 million toys

Here we go again...

So, Mattel are recalling 9 million toys that were 'Made in China' as they contained two dangerous elements: tiny magnets that can be swallowed by kids or higher than acceptable levels of lead paint. Deja vu: two weeks earlier another 1.5+ million Mattel toys were recalled due to a lead paint scare.

As this latest news broke some interesting facts and commentary emerged. One NPR story highlighted how many products are manufactured in China - 80% of the toys sold in the US are made in China. Understand that manufacturing is to China what the IT industry is to India. It's the economic engine driving China into the First World and it'll be very hard to change that trajectory.

'Quality fade'

So, with such a high number of products from China of course any problems will probably be from a factory in China. So why is this happening? For example, we know that Wal*Mart is famous for 'Every Day Low Prices' and some of those low prices come as a result from increasing pressure on its suppliers to deliver. This is managed by the manufacturer through a process called 'quality fade'.

Here's a simple version of how it works: the Retailer squeezes the Manufacturer on price which results in the Manufacturer only being able to carve out a 2% profit margin on the deal. Once the deal has been running for some time, the Manufacturer reduces quality (ingredients, components etc.) to gain a 10% profit margin. The change is subtle and people may be none the wiser.

Here comes the politics

AP reported Sen. Dick Durbin, D-Ill. saying: “Another week, another recall of Chinese-made toys." Rep. Mike Ferguson, R-N.J., said companies whose toys are made in China need to be sure their products meet U.S. safety standards. “If they don’t, I believe Congress must give federal regulators the authority to ensure that our kids’ toys won’t actually harm them,” he said.

With this renewed pressure there could be calls for raised trade barriers and demands for further Chinese Yuan currency re-evaluation to make it fairer for US exporters, although the US dollar has hit a 26-year low which is good for export trade and has got to be helping the US trade deficit.

Bowl of cardboard dumplings please...NOT

China has fake news stories too ;-)

Oh man, as if China didn't have enough world attention on its quality control! Zi Beijia, an aspiring investigative journalist for Beijing Television faked a story that shocked viewers of his report, but also landed him in jail!

Reuters reports that Zi had been arrested after it emerged that he had fabricated a report that local dumplings hawkers were adding softened, pork-flavoured cardboard to their food. On Sunday, a Chinese court sentenced the TV reporter to one year in jail for faking the report that was picked up across the world.

The Chinese official Xinhua news agency reported: "the journalist, Zi Beijia, was convicted after an open court hearing of "infringing the reputation of commodities". He was also fined 1,000 yuan ($132)."

Damage unlimited

But the damage has been done. No one hears that the story is fake, just that there was such a story. The public will remember that China has such practices and might, at best, remember that China fakes news reports.

In this new emerging market economy, trust between China and other countries needs to be earnt. Individuals are busy scrambling to grab a piece of the cake at any cost, but all the outside world sees is China Inc. suffering huge growing pains.

The Chinese love cash...$207 million of it

Cash is king

Zhenli Ye Gon, a Chinese pharmaceutical executive millionaire hit the headlines in March 2007 with a story worthy of a Hollywood script...his home in Mexico was raided and police found $207 million in cash stashed behind fake walls and other hideout spots. He disappeared into the US and left his wife and family in Mexico.

Arrested in Washington D.C.

Ye Gon was arrested on July 23 in the Washington area where he had come to consult with his lawyers. U.S. authorities charge that the money found in Mexico was the largest seizure of drug proceeds in history and that Ye Gon was well on his way to establishing himself as the leading meth supplier to U.S. dealers.

Was he guilty of supplying the key ingredients for illegal methamphetamine production (since 2005) and conspiring to import tons into the States as the American DEA claim? Or was he being framed to protect corrupt Mexican officials as Ye Gon claims in his defense?

Ye Gon's lawyers have always stated that he is the victim of a set-up by Mexican officials who have fabricated evidence against him to hide the fact that Mexico's ruling party had forced him to hide an illegal presidential slush fund. Do you buy that? There are enough Mexicans who doubt the integrity of their government to believe Ye Gon's version of events.

A year later

We'll soon find out more details about this case which U.S. authorities say could drag on for a year. Why so long? The investigation involves the US, Mexican, Chinese, German and Swiss authorities. Also the 'so-called' evidence is, ummm, missing! Well, the US authorities acknowledge that the key evidence isn't in its possession. In fact, the money seized has been recirculated into the Mexican financial system!? And, the 19 tons of chemicals confiscated in December 2006 by the Mexicans have been destroyed! Hmmm. Fishy?

"To say this case has political overtones is to greatly understate the situation," said lead defense attorney Martin F. McMahon. "Most of the so-called evidence has been destroyed."

Ye Gon's defense lawyers added: "there is something obviously wrong when the evidence cited so often by authorities is no longer available."

I concur. But, as we know guilt vs. proof are different things. I wonder if Ye Gon did this even if there's a lack of evidence in hand?