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Another article, this one focusing on China's economy. Note the indication that China's accession to the WTO is expected next year:
Persuading the reluctant spenders
Aug 23rd 2001 / BEIJING
From The Economist print edition
http://www.economist.com/World/asia/displayStory.cfm?Story_ID=749019
As its exports fall, China is trying to boost its domestic economy
Reuters
THE figures appear impressive. Officials proclaim that China really has turned the corner after several years of declining growth. Growth is widely predicted to reach 7.5-8% this year. That may be down a fraction from last year's 8%, but it would still be remarkably healthy for a country suffering from a sharp contraction in its export growth as a result of the global slowdown. Indeed, some Chinese economists are predicting that, for the next two or three years, the country will enjoy an unusually stable period of sustained high growth coupled with low inflation.
There is more good news. China's accession to the World Trade Organisation (WTO), likely to happen next year, may bring in another surge of foreign investment, which already is greater than in any other developing country. In the first half of this year, contracted foreign investment soared by nearly 40% compared with the same period a year ago. Officials say China's successful bid to stage the Olympic Games in 2008 will stimulate industries ranging from tourism to construction, adding as much as 0.3 percentage points to China's annual GDP growth.
Government statistics based on surveys of residents in big Chinese cities suggest that consumers are gradually becoming more confident. China desperately needs such confidence. As export growth slows (exports are likely to grow by a mere 5-8% this year, down from nearly 28% last year), domestic demand is becoming all the more crucial. But if there is a “feel good” factor at work, its effects are patchy. On the positive side, retail sales of consumer goods rose by 10.3% in the first six months of this year, slightly higher than the 9.7% growth of last year. But this is only a moderate spending spree by Chinese standards. Nor is China completely out of the deflationary woods. Consumer prices rose by 1.5% in July compared with 0.3% in the whole of last year. But prices of clothing, household appliances, transport and communication continued to drop.
The sell-off of state-owned housing in recent years and large-scale construction of new apartments has encouraged some affluent Chinese to buy homes and spend money on furnishing and decorating. But consumers generally remain cautious about purchases, big or small. Some 70% of urban workers are employed by the state. At a time of civil-service cuts and closures of state enterprises, these people are not eager to spend with abandon.
China's GDP growth figures may look strong, but they are not matched by a corresponding sense of well-being and security among ordinary citizens. A favourite, and reasonable, complaint of urban residents is that an increasingly disproportionate amount of the country's new wealth is lining the pockets of a privileged few. Many are afraid that WTO membership will throw more out of work, particularly in the inefficient state sector.
Even growth of 7-8% is not enough to cope with China's fast-rising unemployment. The urban rate is officially put at about 3%, but most experts agree it is at least 8%. Rural underemployment is around 30%. This week, the prime minister, Zhu Rongji, said the economy, though still expanding, was in need of a boost. He did not say what the government had in mind, but those close to him indicated that civil servants might be in for a pay rise, there would be easier credit and more incentives for exporters.
In reality, China's growth, though definitely positive, may well be lower than the official figure, given the propensity of local authorities to exaggerate. Moreover, despite GDP growth in the first six months of 7.9%, the increase in the value of industrial production slowed month after month between February and July, from 19% to just over 8% compared with the same months a year ago. Slackening external demand is at least partly to blame.
For the past three or four years, the government has been stimulating domestic demand through massive spending on housing construction and other infrastructure. But this cannot go on forever without incurring unsustainably high debt. Some Chinese economists argue that spending levels will have to be scaled down within a couple of years. The budget deficit is already ballooning. In addition, the government is struggling with the hidden costs of propping up a banking system plagued by bad debts incurred by politically inspired loans to bankrupt state firms.
What then of rural China as an engine of growth? This is where some 70% of Chinese live. Chinese officials realise that maintaining high levels of growth over the long term will depend on the rural market. But in the countryside, the prospects are far from rosy. The average cash incomes of rural households are about the same as they were five years ago, while taxes have been soaring. Membership of the WTO will be a further blow to the farmers as China opens its doors wider to agricultural imports. In the villages, retail sales in the first half of this year rose 7.4%, compared with 11.6% in the cities.
China needs to generate and distribute wealth more effectively, and to keep its labour costs low by letting its rural population find work freely in urban areas. But it remains fearful of what might happen if it scraps Mao-era restrictions on internal migration. Its cities do not have the infrastructure and services to cope with a massive influx of job seekers. The tens of millions of rural dwellers who have found (or are looking for) work in towns and cities are already a huge burden. China is fortunate to enjoy high growth. Even a moderate downturn could cause an employment crisis with far-reaching social and political consequences.
Here is an ineresting article on decision-making that contains a section about China and the tendencies of the Chinese management style. Read it all if you can. The section I mentioned is in bold.
http://www.emeraldinsight.com/now/spotlight.htm
SPOTLIGHT ON DAVID HICKSON
In this issue of Spotlight, Professor David Hickson speaks to editor Sarah Powell about his research into the process of decision making, the impact of national cultures on this, and the growing economic importance of China in the twenty-first century.
David Hickson is Emeritus Professor of International Management and Organization at the University of Bradford's School of Management. His academic life began with work as a researcher under Professor Reg Revans at UMIST. David subsequently researched at the University of Aston where his role model was Derek Pugh. Later he took up professorships at the University of Alberta, Canada and the Netherlands Institute for Advanced Studies in the Social Sciences and Humanities.
Professor Hickson's main interests are the process of decision making and the impact of cultural differences between countries. From his earliest days he recognized the value of team working in research and he has worked closely with many influential management thinkers of different nationalities. His research interests led him in 1970s to become a founder member of EGOS, the European Group for Organizational Studies and, later, founding editor of the supranational research journal Organization Studies. He holds a Swedish Honorary Doctorate.
Best known among David Hickson's many works published in collaboration with other authors are Top Decisions, Management Worldwide, Exploring Management across the World, Managerial Decision Making and Writers on Organizations. He is a co-editor of The Bradford Studies of Strategic Decision Making which is to be published later this year.
Spotlight: It is often said that making decisions lies at the core of management. Is that how you see it?
David Hickson: Yes, I certainly do. Major decisions about such issues as takeover bids, new product launches or breaking into a new market, for example, focus what management is doing. Our research has shown that the average time needed to make major decisions is about a year; it can be shorter than this if there is an urgent need, but it can also take far longer - often as long as four years. There usually follow several years during which decisions are implemented which means the total process focuses the management for some considerable time and, of course, other decision making is taking place simultaneously.
Decision making can be destructive. We at Bradford have written about what we call 'decision over-reach' which describes a situation in which an organization over-extends itself and is unable to retract. I can cite from experience the case of a small brewery which acquired another brewery plant with eight times the capacity of the original. Production was no problem but the company was unable to sell the beer fast enough to finance the interest on its borrowing - the result was that it ceased to exist as a working entity and became a mere shell, owned by a lender firm.
Of course many decisions are safer than that. About a third are what we term 'quasi-decisions', i.e. they are a foregone conclusion. Though managers may spend a year or so considering such a decision, a useful process because it acts as a check that everybody agrees, everyone knows what the decision is to be anyway.
In twenty-five years of work on decisions at Bradford we have found that, as we put it, 'the matter for decision matters most.' By this we mean that a significant decision about, say, a takeover or a new plant or entering a new market, has similar features in whatever organization it occurs. The type of organisation: hospital, factory, university, whatever it might be, makes relatively little difference. What is crucial is the subject, or matter, of the decision. For instance, a takeover is very different from a new market launch and cannot be approached in the same way.
Spotlight: To some degree does this not place a question mark over the value of benchmarking or case studies?
David Hickson: It certainly suggests a proviso. Benchmarking gives you something at which to aim, but how you go about making a major decision must remain flexible around a benchmark standard, reflecting what it is you are doing. Similarly, while a case study is obviously a superb illustration, it is always dangerous to generalize from it. So, yes, the case study of our brewery overreaching by buying too much capacity is a warning, but other companies might manage something similar in a better way. Each case depends on its own history and circumstances.
Spotlight: Is there a particular style of managerial decision making that sets the standard in today's fast moving competitive world?
David Hickson: No one style is appropriate worldwide. We can illustrate this with a brief description of each of three of the most successful economies in the last fifty years: the American, the Japanese and the Swedish. The stereotypical American is fast and assertive in his or her approach to management. Decision making is therefore fast and assertive and can be seen to live up to the old crack about the Americans trying something to see if it will work whereas the British won't try it until they're sure it works. The result in America is a successful economy born of successful decisions.
Contrast this with Japan which, while having problems now, can't be dismissed given its extraordinary successes over the last 100 years. The Japanese approach decisions in a way which is thorough and ensures the support of everybody involved. Compare this to the American approach - they make decisions fast, without time to fully consider problems of implementation which, consequently, can be slow and troublesome. Meanwhile slow and thorough Japanese decision making means implementation, when it comes, is fast because everyone by then is committed.
The Swedes are different again. They are even slower than the Japanese in how long it takes to reach a decision but they are even more decentralized and consultative in a very open, typically Scandinavian way which minimizes hierarchy.
So three very successful economies are led by decision making styles which differ considerably. The fast and assertive, the slowish but thorough, the very slow but very democratic and open - but they all work. Hence it is not possible to say that any one style would be the best worldwide - what suits an American will certainly not suit, say, an Indonesian. There is no universal best way. What does seem to happen though is that certain periods are marked by a particular cultural approach that comes to the fore because it suits the economic and social circumstances of the day.
Spotlight: Do you see the spread of US management theory and practice as promoting a move towards a greater degree of convergence in management structures and behaviour, i.e. a global management culture?
David Hickson: Yes I do. In my academic field for example, I cannot avoid being influenced by the Americans because they are predominant in numbers and often in quality of what they do. And yes, American management training encourages everybody towards the same way of thinking. The spread of the English language worldwide as the main language for international communication does the same because a language has inherent in it a way of thinking which is different to that in another language.
In our research at Bradford into decision making we discovered that British subsidiaries of American corporations make decisions in a way which is faster and more informal than the British norm. Here we are talking of British firms with no Americans in them, but owned by American corporations. They are effectively swayed towards an American style of decision making. The influence is noticeable and this means ownership must be a factor. Given widespread American ownership of big multinational corporations there is bound to be widespread influence.
This said, despite the convergences, there remain irreducible cultural differences everywhere, which do not disappear. As a result not everything in a foreign subsidiary is influenced by the owning country. Take the contrast between Germany and Brazil. The German style of decision-making is careful, very orderly. The Brazilian style, by contrast, is highly personal, fairly spontaneous and fast - it won't wait for tomorrow. Where you have a Brazilian subsidiary of a German company, nothing will turn the Brazilians into Germans in operational terms - it will sway them towards that way but it won't change them that much.
Spotlight: Given the spread of international exchange and study programmes for students and growing numbers of internationally focused management courses, is there any lessening of the impact of national cultures on ways of doing business, i.e. are young people becoming more internationally focused before they embark on their careers?
David Hickson: Yes, but the question is: to what degree? Young people have been influenced by what is usually the management teaching of the West, i.e. management teaching generally based on American practice, standards and ideals. But, while studying in another country certainly gives you an insight into that country's education and thinking, it also teaches you who you are. You may not realize just how British, Hungarian or French, for example, you are until you leave your country and are subject to a completely different culture.
Young students studying abroad undoubtedly have their rational minds, their cognition, broadened by the experience. Their minds opened to other ideas and possibilities. Yet they remain emotionally and culturally French, Burmese, Japanese or whatever their origins. One can hope that they will eventually go back to their countries enriched by the experience - particularly if they are from developing countries where their contribution is so valuable - and more open to other ideas. Though often they revert to traditional ways of doing things when on their home soil.
The extent to which people can change is limited. I'm not saying change is impossible, however I am cautioning against over optimism - change in behaviour as opposed to technological change, comes slowly. The way people think and act can be modified but real change will only become evident over generations. The new generation in any country will be influenced by more open minded, more experienced parents - and the difference will be more pronounced.
This said, early exposure to other cultures is a huge asset to those working in an international environment. It keeps the learning experience alive, reinforcing it day by day. Knowledge of other countries and cultures is extremely useful, particularly for senior managers in organizations who are influential. It helps them to work successfully with others, avoiding social and business blunders.
Spotlight: How relevant are cultural stereotypes in comprehending our differences?
David Hickson: A stereotype can be useful if you are visiting a country and have had no orientation at all to its culture. A stereotype is in effect an over simplification - a 'cartoon' image of what people are like. But it is nevertheless a start... In my experience most stereotypes have a good deal of truth behind them.
There is some evidence that managers who are posted to an entirely different cultural setting and who carry with them an over simplified view of the people there will nevertheless stand a good chance of succeeding if they 'use' that view cautiously and flexibly. They could store the image in the back of their minds yet study carefully the people they meet, what they do and how, learning from these experiences and adapting the stereotypical view they hold.
Meanwhile, someone who sets out with that same broad stereotypical cartoon image, but maintains it rigidly with no adaptation to their actual experiences, has prejudged the situation and will reach conclusions based on prejudice. Consequently they are less likely to be successful in their mission.
Spotlight: In multicultural organizations, does the recognition of cultural diversity improve the prospects of successful collaboration?
David Hickson: As I understand it, the multinational corporations which are most successful balance an inculcation of loyalty to corporation headquarters and training in concepts and procedures which, for efficiency's sake, need to be the same everywhere, with recognition of the differences between the nationalities and the benefits that can derive from this. The cultural differences are not ignored. Such a company is accustomed to having employees of different nationalities and takes advantage of this.
Managers are well aware that a Japanese member, for example, will have by far the best insight into how their sales training should be adapted to the Asian market. They also recognize different behaviour patterns in different cultures and they take these into account in their relations with staff, checking what people really think, holding discussions with people individually when necessary to ensure there is understanding. Successful companies neither see cultural diversity as a problem nor ignore it - they consider it an advantage.
Spotlight: The Americans continue in the forefront in economic terms. The 20th century saw the Japanese economic miracle. Which nation do you think will be the next to achieve such prominence?
David Hickson: History shows that fortunes and civilizations rise and fall. Take Britain, a nation which like many others had its day but has fallen back relatively speaking. We may be as good as we were but others have forged ahead of us. So, who is going to supplant the Americans and Japanese over the next 100 or 200 years? Nobody can predict the future but it is commonly believed that it will be the Chinese. President George W. Bush is said already to have directed foreign policy to pay more attention to the Chinese. And I believe he is right to do so.
One fifth of the world's population is Chinese and as a nation they have very effective capabilities in management. They are particularly adept at running small firms as has been seen in Hong Kong and among the overseas Chinese, particularly those in the South Pacific and Central Pacific Islands. They take the lead in business in all these areas.
While they are adept at this, when they run larger organizations, e.g. hospitals, manufacturing or mining businesses etc., they usually adopt a centralized style. Decisions are referred upwards for approval, and decision making below the top of organizations operates on a network of personal understandings and deals. This highly personalized style applies everywhere. It all comes down to a question of: who knows whom? But we need to ask: will this work so well as the Chinese economy goes further into the stage where it needs large organizations, large volume manufacture, extensive, diverse networks of say electronic or communications firms? Will it be as successful? While it looks very much as if it will, we can't be certain.
Spotlight: There has been research at Bradford Management Centre for more than a quarter of a century on how the bigger, more strategic decisions are made? How can students and managers best get at its findings?
David Hickson: Later this year will see publication of The Bradford Studies of Strategic Decision Making, a book which encompasses much of our work over the last quarter of a century on how major decisions are made. This is the latest in a series of books brought out by the publishers Ashgate, each of which brings together work published by a British-based programme of research lasting numbers of years. Previously publication of such research was dispersed between a number of research journals so the idea was that the work should be brought together in a single volume.
Our book begins with a discussion of whether it makes sense to study decisions at all - a controversial area of research. Is there such a thing as a decision? During people's working day they form opinions on what their company should or should not do and they subsequently discuss their ideas - but they already know most of the 'ingredients' of that decision. We are talking here of what I earlier termed a 'quasi-decision'. They all know what the outcome is going to be - so where was the decision? Did it occur when a minute was appended to the directors' board minutes? Or was it when a regional manager was thinking while waiting in some airport departure lounge? Or did it come from someone else, at some other time? At Bradford we believe that you can identify periods in which managers concentrate on decisions and that they are well worth studying. The first section of our book discusses this problem.
There then follows a selection of papers comparing decision making processes. Here we discern three main patterns: sporadic, fluid and constricted. Sporadic means jerky, fluid means smooth and constricted conveys the idea of tight control. There are many variations in development of these patterns in different situations and we have also included discussion of such issues as the influence of trade unions on decision making.
Another section of the book looks at organizational features and the variations between public sector, private sector and voluntary organizations. We then go on to discuss national features in decision making. Finally, I have contributed a paper reflecting on the field as a whole, including the work of others outside the Bradford group who have contributed to this area of research.
The Bradford Studies of Strategic Decision Making edited by David J Hickson, Richard J Butler, David C Wilson, published by Ashgate, Dartmouth, is due for publication later this year. A second edition of his popular Management Worldwide (Penguin) will be published next year.
Just a note to update CBQ's banking relationship. Wachovia has officially taken over First Union, so CBQ's banking relationship (established with First Union in June) is with Wachovia. (With the completion of this mega-merger Wachovia is now the fourth-largest bank in the nation.)
If I have calculated correctly, the ATEC (TEC) 10-K will be due out on the 15th, which means we should be able to read it next Monday. I'll be interested to have a look at it...
I hadn't seen this recent PR from our new alliance partner posted yet, so thought some may not have seen it:
http://biz.yahoo.com/bw/010612/2063.html
ATEC Group Announces Creation of New IT-Enabled Services Division
COMMACK, N.Y.--(BUSINESS WIRE)--June 12, 2001--ATEC Group, Inc. (AMEX:TEC - news), a leading system integrator and provider of a full line of information technology products and services, today announced the creation of a new division, IT-Enabled Services (ITES).
The new division, which will be based at the company's Commack, NY, headquarters and Chandigarh, India, will provide ATEC Group clients with a wide range of services in Customer Relationship Management (CRM), including Call-Center services, help-desk support, telemarketing, market research and back office operations.
A dedicated line circuit for the newly created ``ITES'' division between the company's Commack headquarters and Chandigarh, India is being implemented by AT&T/Verizon and should be completed by mid July. The new division will launch operations by providing help-desk support for NEXAR, ATEC's PC manufacturing division. This will serve as a demo of the new divisions Call-Center capabilities and allow the IT-Enabled division to establish vendor relationships to provide the highest quality services.
``We are very pleased to enter this exciting and rapidly growing market, a perfect complement to our core business'', said Surinder Rametra, chairman and CEO of ATEC Group. ``Call center and help-desk support offer a tremendous opportunity globally, especially since today's customers in the digital economy are demanding easier access and more personalized service from their suppliers. We believe we are in a position to provide excellent, quality service at an attractive price.''
According to recent estimates by IDC a division of International Data Group, Customer Relationship Management ``CRM'' services, which include the global call center services market, technical support and help-desk, revenues are estimated to exceed $90 billion by the year 2003.
About ATEC Group
Based in Commack, New York, ATEC Group, Inc., is a leading system integrator and provider of a full line of information technology solutions and services. Its Technology Integration Services (TIS) division is a one-stop provider for the computer needs of enterprise customers including businesses, government agencies and educational institutions. TIS offers supply chain management, LAN/WAN, system integration, staffing, Internet and e-commerce solutions. ATEC Branded Solutions(TM) provides enterprise architecture and blueprints for successful solutions. Its Global Distribution (GD) division is a B2B division that offers a unique combination of price and delivery to other resellers, retailers and enterprise customers. The company is positioned for growth through Nexar Technologies, its PC manufacturing division, and growth within Internet, e-commerce and staffing solutions.
For more information on ATEC Group, please visit the company's web site at www.atecgroup.com. Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: The statements that are not historical facts contained in this press release are forward-looking statements that involve certain risks and uncertainties including, but not limited to risks associated with the uncertainty of future financial results, additional financing requirements, development of new products, government approval processes, the impact of competitive products or pricing, technological changes, the effect of economic conditions and other uncertainties detailed in the company's filings with the Securities and Exchange Commission.
Will HP, Compaq, IBM, and Dell be affected by the CBQ deal?
http://www.cbq.com/081601.htm
"The prospect of importing computers from China is very exciting and will mark a sea change in the Information Technology hardware field," said Bart S. Fisher, Chairman and CEO of CBQ, Inc. "We fully expect China's computers to be of the highest quality and very price competitive in the U.S. marketplace -- about 40% below comparable U.S. prices in some lines -- and we intend to be a leading distributor of the Chinese products in the U.S. market through our Networkland affiliate."
Some of the analysts the article quotes advise staying away from the hardware companies.
Gary, I'll try a reply. Though I also await any official response you may have on the matter.
When CBQ acquired a piece of the China Wirless deal, I believe their main responsibility was to come up with $10-15 million in cash to fund the deal. They couldn't come up with it. The timing was not right.
Early this year, I inquired as to whether CBQ was looking to divest themselves of their rights to the deal. The initial response was that they would look to sell the rights. Then I was told that they had changed their minds.
If CBQ can come up with an equity partner interested in riding CBQ's coattails into the China market, then the China Wireless deal could be resuscitated very quickly. While it would have been nice to gain a year's lead time in establishing the two-way wireless network with a stock information and trading application, it is not too late to take advantage of the opportunity.
The question now (as it was eight months ago) is one of focus. Can CBQ pursue this opportunity along at the same time that it tries to succeed with the other opportunities in its strategy?
Nice article, Gary. Shows how far a company can come when the vision of a great leader is translated into action.
Such a cooperative relationship would bode well for CBQ, Inc. and its shareholders.
Yes, Gary, and his other firm, Capital House, is a merchant banking firm, isn't it?
http://capitalhouse.com/chframes.cfm?area=p
I would think he has a clue as to how best to handle such transactions. If he doesn't, maybe he can give ol' Bix a call for some advice...........NOT!
The question regarding payment terms---payment terms between CBQ and its customer, payment terms between Superior and CBQ---is an interesting one.
Comdex is scheduled for Novermber 12-16. China's acession to the WTO may occur as early as November. CBQ expects to bring Chinese-manufactured computers into the U.S. by the end of the year. The last quarter of this year could be full of interesting delopments for CBQ.
I don't expect CBQ will initiate this business line by importing and storing computers. They will get an order and arrange for fulfillment. I'm hoping the first order will be to an alliance partner. Perhaps that would be an IT solutions provider, perhaps it will be to a U.S. computer hardware distributor. Perhaps another type of customer entirely. In any case, I expect that these computers will be drop-shipped directly to CBQ's customer. CBQ can do the quality assurance on the Chinese end before the shipment is assembled.
This article is indicative of the deflationary trend in the U.S. PC hardware market. CBQ's sale of Chinese computers here will accelerate that trend.
OPINION: ERIC J. SAVITZ
Price Choppers
In case the tech sector doesn’t have enough problems, here's another one: The recovery, when it comes, could be undone by deflation.
Aug 29 2001 06:01 AM PDT
OPINION One of the most shocking pieces of technology news in recent weeks was the word that Intel plans to slash prices on its Pentium IV microprocessors by 50 percent or more – dropping what Lehman chip analyst Dan Niles described as a "price bomb."
Now, there’s nothing new about declining chip prices. The steady ratcheting down of computing costs over time is at the heart of Moore’s Law – over time, the cost of a given amount of computing power becomes increasingly small. More precisely, chip processing speed doubles about every 18 months.
But Intel’s move, apparently designed to knock the wind out of rival Advanced Micro Devices and to stimulate PC demand, smacks of something more insidious. In short, while Moore’s Law continues to operate, in some very important ways it may not matter as much as it used to. And deflationary forces like those in the processor business could go a long way toward muffling the tech recovery - whenever it finally shows up.
At least, that’s the thinking at the Precursor Group, a Washington-based investment boutique. Analysts Scott Cleland and Bill Whyman assert in a recent report that investors have failed to realize that "serious deflationary pressures" could undercut the ability of the technology and telecom sectors to grow rapidly when the recovery arrives. Writes Precursor: "The sector’s fundamental potential for growth is eroding."
Certainly, a reduced impact from Moore’s Law would have a chilling effect. As Precursor points out, Moore’s Law may have been the single biggest driver of the tech boom over the last two decades. But Cleland and Whyman contend that the importance of Moore’s Law to hardware companies – and to investors – has been reduced by the failure of the software business to create the kind of applications that require the power state-of-the-art processors can offer.
"In the last year, hardware performance for the first time has dramatically outpaced software’s ability to use it," they write. The result? "The faster-growth PC replacement cycle of the past is over."
The combination of excess processing power and the commoditization of memory and data storage, Precursor says, means "longer replacement cycles, reduced demand and deflationary price traction" for the PC business. In short, the analysts conclude that "Moore’s law may have lost much of its investment traction."
Alas, that’s not the end of Precursor’s deflation thesis. The firm sees further pressure coming from the glut of fiber capacity, asserting that new demand is "way overestimated" given that no killer app requires fiber to the home. As they point out, DSL and cable modems certainly don’t require it. Deflationary forces in telecom, Cleland says, have been exacerbated by both telecom legislation and FCC policy, which have encouraged competition, added costs and constricted the industry’s ability to raise prices.
Cleland and Whyman believe that conditions in microprocessors and communications services share the same issue: The market simply can’t absorb the existing capabilities of either technology. "Fiber and silicon technology is now flooding the market with bandwidth and processing speed in market segments that can’t put it to full use, which deflates prices and slows growth."
Precursor’s analysts advise tech investors to weight their portfolios toward companies that stand to benefit from declining hardware and equipment prices. The firm remains bullish on the "access" business, in particular the Baby Bells and the cable systems companies. The analysts are also favorably inclined toward enterprise software companies, as well as on computer services and consulting firms. But they recommend avoiding the deflation-vulnerable hardware companies. Those stocks, Precursor warns, "could prove to be a particularly thin base for a growth portfolio."
Consider yourself warned.
Bix, this is the last post I am going to make on this topic, because you appear to not care whether you are wrong or right. You just want to argue and clog up the thread with nonsense.
1. IBM has lost market share in China if you compare 1996 to now. In 1996, IBM was the leading PC supplier in the Chinese market. Until last year, IBM also led the Asian PC market. They don't any longer. Legend does.
http://news.cnet.com/news/0-1003-200-4756401.html?tag=rltdnws
2. Market share does not equate with units sold. You can increase units sold by 22.3%, but if the total number of units sold in the market increases at a faster rate, then you can actually lose market share. End of story. IBM in Asia is a perfect example. IBM increased sales in Asia 27.9% in 2000. But total Asian PC sales increased by 30%. They did great, but lost market share. Argue it all you want, but you have proven more than once that you have no shame.
3. The U.S. will not and cannot issue tariffs against Chinese computers once China is a member of the WTO. Also, according to the US-China WTO agreement, China will have to phase out its tariffs against U.S. computers, eliminating them by 2005. http://www.uschina.org/public/991115a.html
4. This discussion really has very little to do with CBQ, Bix. You have gone on and on about IBM being able to compete against low-cost computers, somehow trying to argue that this shows they will be able to defeat CBQ when it imports low-priced Chinese computers. First of all, I've shown that you're wrong. IBM has lost to Legend in China and Asia. Second of all, CBQ will not need to worry about IBM in the U.S. If CBQ takes one-tenth of 1% of the total computer sales in the U.S., they will succeed beyond my wildest dreams and my CBQI stock will be worth more than it is now. One tenth of one percent, Bix. That would represent about 44,000 units shipped. Multiply that times, oh let's say $500/unit, and they would have grossed $22 million. I don't think CBQ needs to take that one-tenth of one percent away from IBM, Dell, HP, or Compaq. There is 30% or so in the bottom-tier of the market that they can steal share from, Bix.
5. Did I say I'm done with this discussion, Bix? Well, I am.
Actually, Bix, I am not wrong, you are wrong:
http://www.legend-holdings.com/eng/media/20000926150604_media.html
"It wasn't supposed to be this way. Pre-1996, IBM, Compaq and AST jostled for the top spot in China's PC market. Legend mostly distributed other companies' PCs. But in 1996, Legend got serious about selling PCs. It lowered prices, improved quality and targeted the home market, just beginning to take off."
It may be that IBM's sales in China have increased.
The report you posted shows that IBM's PCs shipped increased from 122,263 to 149,504 from the first half of 1998 to the first half of 1999. That is the 22.3% growth you quoted. But it is not growth in market share. The table clearly shows that IBM's market share increased only from 6.6% in 1998 to 6.7% in 1999. Of course, that is still growth. I can't argue that. But it is nowhere close to 22.3% growth in market share. Try 1.5% grwoth, Bix. And yet only a couple of years before, IBM, Compag and AST jostled for the top spot in China's PC market.
And please note, Bix, that in the USA Today article I posted a link to, the following is mentioned:
"In the last quarter, Legend's market share surged to 23% from 17.3%. Such a gain in one quarter is "unprecedented," says PC analyst Douglas Lee of Goldman Sachs in Hong Kong.
At the same time, the combined market share of IBM, Hewlett-Packard and Compaq Computer dropped to 13% from 15.4%. "Legend is eating them for lunch," says Vijay Harjani, PC analyst at Credit Suisse First Boston in Hong Kong."
It doesn't sound like IBM is holding its own in the Chinese market, Bix. So if you want to use IBM's success in China as any indication of their ability to defend their position in the U.S., you're off base.
But actually, Bix, I don't think CBQ, Inc. needs to beat IBM to succeed in the U.S. market.
Yes, Bix, but you're missing the point. IBM used to be the dominant PC provider in China...as recently as 1996. They are losing market share.
I would put it a different way, Bix. SOBUS is the muscle that UltraChina taps if it gets the business. It is an alliance-partner. It is not "behind" UltraChina, not from what I can see. No more so than Compaq is "behind" Networkland.
UltraChina appears to be a much smaller operation, in fact, than Easysoft, which CBQ, Inc. recently acquired.
You are right, Bix. UltraChina does have an office in the U.S. that can funnel outsourcing work to SOBUS in China. Their president, Dr. Xu, looks like a formidable fellow. They are currently a small operation, but they are competition nonetheless:
"Currently, UltraChina, Inc. has 8 full-time employees based in Connecticut, 2 business consultants in Beijing and Shanghai, and over 20 translators and editors for the publication of China Economic Weekly."
Yes, I've followed Dell's success in China, Bix. They are still growing and probably will consinue to do so. Dell has proven themselves to be no dummies. The challenge they will face is that Legend is pretty darned smart, too. Legend has taken note and copied their approach. As the article I posted yesterday indicates, Legend also has retail stores, which can help those unfamiliar with computers to understand and gain the confidence to purchase one. Now, Legend will be invading the U.S. market. It will be interesting to follow this story over the coming years.
Excellent find, Bix! I just wish you would spend as much time providing the link to back up your statement that 2GHz computers are being sold for $700. I want to buy one at that price.
P.S. SOBUS looks like they have good capability. They are missing the CBQ advantage---a distribution arm in the U.S. and Dr. Wei Sun as the Chinese-U.S. liaison.
Bix, this article provides a good overview of what's going on in the Chinese computer industry. I would tend to agree with what some had posted---companies that have a foothold in China and are manufacturing there should soon be able to bring Chinese computers into the U.S. It should simply be a matter of getting the right licenses, etc.
The problem is that these companies already have built-in costs in their existing supply chain and domestic manufacturing facilities. Those costs won't go away overnight. They will not be able to shift nimbly to a Chinese-only manufacturing cost model. CBQ, Inc. is building its computer hardware business upon a Chinese-only manufacturing cost model.
http://www.legend-holdings.com/eng/media/20000926150604_media.html
PC Legend in the making
U.S. companies lag as Chinese firm's market share in China soars
By Julie Schmit, USA TODAY
HONG KONG -- Wang Hai Lin, 14, knows why he wants a personal computer made by Legend Holdings.
"It is cheaper, it is better, and it is Chinese," he says as he and his parents shop for PCs in the Chinese city of Shenzhen. Wang is one more reason for Beijing-based Legend to cheer -- and for U.S. PC companies to groan.
Legend is racing away with what is soon to be the world's third-biggest PC market -- China -- and its U.S. competitors are falling further behind in a market they once led. While China's PC market is young, and winners and losers may change several times in the future, Legend is looking more likely to live up to its name.
In the last quarter, Legend's market share surged to 23% from 17.3%. Such a gain in one quarter is "unprecedented," says PC analyst Douglas Lee of Goldman Sachs in Hong Kong.
At the same time, the combined market share of IBM, Hewlett-Packard and Compaq Computer dropped to 13% from 15.4%. "Legend is eating them for lunch," says Vijay Harjani, PC analyst at Credit Suisse First Boston in Hong Kong.
It wasn't supposed to be this way. Pre-1996, IBM, Compaq and AST jostled for the top spot in China's PC market. Legend mostly distributed other companies' PCs. But in 1996, Legend got serious about selling PCs. It lowered prices, improved quality and targeted the home market, just beginning to take off.
While Legend's fortunes came together, the U.S. companies stumbled. AST was on the ropes globally. Compaq suffered a fiasco with its distribution system in China.
In 1997, Legend took the lead, and it hasn't looked back. A recent Chinese government survey found Legend, which is 61% owned by the state and the rest by private investors, to be one of China's top 10 brands.
Its stock, on the Hong Kong stock exchange, has soared this year, from 2.72 Hong Kong dollars on Jan. 1 to a close of 18.20 Hong Kong dollars Friday. Legend's revenue was up 46% in fiscal 1999, which ended March 31. Net profit jumped 34%.
"They have been unstoppable," says Tony Leung, director of Compaq's consumer group for China.
China is a valued prize. Market researcher International Data Corp. predicts it will be the third-biggest PC market after the USA and Japan in two years. For the past three years, China's PC market has averaged 37% growth per year. About 70% of China's 1.2 billion people live in rural areas, and most can't afford PCs. But China's urban population is wealthier, and it's as big as the entire U.S. population. Of those urban homes, just 2% to 3% have PCs. In the USA, PCs are in almost 50% of homes.
U.S. companies mostly haven't targeted China's home market yet. Instead, they've gone after the higher-margin business buyers. But as the consumer market grows, they'll put more effort into it. Just weeks ago, Hewlett-Packard rolled out its home PC in China. Gateway expects to enter the market next year, says Frank Smilovic, regional manager. Dell Computer introduced its first home product last April. "Over time, we have to move down into the consumer market to continue to grow," says David Chan, president of Dell Computer's China operations.
Toughening up
To be more competitive, U.S. companies are:
Finding local partners. Last year, Compaq launched a joint venture with China's Dawncom, which now manufactures and distributes Compaq PCs in China. "A local company knows how to market to its citizens better than a foreign company does," Leung says.
Compaq's China market share is half of what it was two years ago. Leung attributes that to the rise of local PC makers, including Legend, and Compaq's failure to realize sooner the value of manufacturing locally. Still, Compaq shipped 16,000 PCs into China homes in the first nine months of this year. That was up from 9,000 for all of last year.
Manufacturing in China. IBM now makes almost all of its PCs for China in China. Two years ago, it imported about 30% of them, says Richmond Lo, general manager of IBM's personal systems group for China. That increased costs to buyers because of 30% tariffs on imported PCs. There are no such tariffs on products that are made in China for sale in China.
Dell opened its plant in China in 1998.
Legend won't make it easy for the U.S. companies. Its PC prices are 10% to 15% lower. It has 2,000 distributors vs. a few dozen for the U.S. companies. In the past year, it added 250 service centers for a total of 400.
Help from on high
The government also helps Legend:
China recently cracked down on smuggling of goods between Hong Kong and China, hurting foreign-made PC sales because many of them were smuggled by distributors in Hong Kong into China to avoid tariffs, analysts say.
Government agencies are encouraged to buy local brands to support China's high-tech industry, says Kitty Fok, IDC China analyst. The government accounts for 18% of Legend's PC sales.
Legend gets research and design help from the Chinese Academy of Science, the leading Chinese high-tech R&D center.
Even China's accession to the World Trade Organization isn't expected to give foreign PC makers much of a boost. As a WTO member, China must drop tariffs on imported components and products. In the PC sector, such tariffs range from 6% for chips to 30% on full systems. But Legend, like its U.S. competitors, imports chips, hard drives and operating systems. So it will benefit from falling tariffs, too.
Ultimately, Legend's success will depend on whether consumers like its products. Home users account for 33% of Legend's sales. In two years, they will account for 50%, says Mary Ma, Legend's operations chief.
So far, Legend is hitting the mark. Eight of 10 Chinese buyers have never bought a PC before, and Legend does a lot of hand-holding. "We try to lessen their terror," Ma says.
Its "Happy Family" software lets users point to pictures on the screen to get the PC to do what they want. By clicking on a calendar on a desk, they open up the calendar program. Last month, Legend rolled out a warm, oval PC in blue, green and purple. It comes bundled with a free year of Internet access that connects with a single keystroke. Other keys take users to sites for such services as news or sports.
To get more face time with consumers, Legend has opened 40 retail stores in major Chinese cities. By April, it expects to have 100 stores.
In the stores, shoppers can tinker with PCs and receive training on how to use them. Says Beijing student Liu Yinghao: "Legend suits the Chinese market."
Contributing: Antoaneta Bezlova in Beijing
Bix, note this press release makes no mention of Shanghai General Electronics Group Co. Ltd. as a wholly owned subsidiary of GE. Why would that be, Bix?
http://www.infocus.com/company/press/archive/06_29_99sgeg.asp
"InFocus® Enters Manufacturing Agreement With Leading Chinese Electronics Company
Will partner with Shanghai General Electronics Group to manufacture InFocus projectors for the Chinese market
Wilsonville, Ore., June 29, 1999 -- InFocus® (NASDAQ: INFS), the global technology and marketshare leader in data/video projection systems, announced today an agreement with China’s leading electronics company, Shanghai General Electronic (Group) Co., Ltd (SGEG), to manufacture InFocus’ extremely popular personal projectors in China for distribution in the Chinese market. Under the terms of the agreement, SGEG will be the exclusive manufacturer of InFocus personal projectors sold in China. In addition, SGEG will market products based on the InFocus’ personal projector platform under the Shanghai General name.
The agreement between the two companies combines both technical and design expertise and infrastructure capabilities in one of the biggest markets in Asia. "This strategic relationship with Shanghai General further demonstrates our commitment to global leadership in our industry," said John V. Harker, chairman, president and CEO of InFocus. "It also contributes to InFocus’ objective to accelerate the growth of the data/video projector industry worldwide and further reinforces our strong commitment to the market in China."
One key element of InFocus’ strategy for expansion of the data/video category is to make its technology available to as many end-user customers as possible. Personal projectors based on the InFocus technology platform are currently available under multiple brand names in addition to InFocus’ own. Sharing projector expertise with a reliable and capable partner such as Shanghai General contributes to this overall global expansion strategy.
"This agreement is a milestone for China’s projector manufacturing industry. It is the first time that China has received a license from an international company to manufacture DLP-based projectors in China. We see the sharing of projector manufacturing expertise with InFocus as a major strategic step for SGEG," said Mr. Xu Wei Hu, chairman and CEO, Shanghai General Electronics (Group) Co., Ltd. "It allows SGEG to combine our manufacturing expertise with InFocus’ optical engine expertise to produce truly superior results."
InFocus has been serving the Chinese market for several years through a well-established network of local distributors. In the last two years, InFocus has become one of the leading brands of data/video projectors in China. "Strategically, China is one of the most important markets for InFocus," said Thomas Mills, Managing Director, InFocus Asia-Pacific. "InFocus’ shipments to China grew by 273% in 1998, spearheaded primarily by the LP™420 and LP™425 personal projectors."
Though the market is still in its early stages, China presents enormous long-term growth opportunities for InFocus. Projection technology has been named as a new economic growth point for China. Experts forecast that the market will increase 30-40% annually over the next five years.
InFocus Systems, Inc. (NASDAQ: INFS) is the worldwide leader in developing, manufacturing, and marketing award-winning data/video projection products and services. All projectors provided by InFocus are backed by a comprehensive two-year service warranty, an exclusive "24-hour seven days per week" customer support hotline (800) 799-9911 and our Priority Care program. For the fiscal year ending December 31, 1998 InFocus revenues were $306.7M."
Bix, plese post a link that shows Shanghai General Electronics Group Co. Ltd. is a GE subsidiary.
I have found no such information:
"Shanghai General
Electronics (Group) Co., Ltd.
Shanghai General Electronics (Group) Co., Ltd. (SGEG) is a large-sized electronic enterprise group in China electronic industry. It is co-invested by Shanghai Automotive Industry (Group) Company, Shanghai Instrumentation & Electronic Holding (Group) Company, Shanghai Broadcast Movie and Television Development General Company, Shanghai Enterprise (Group) Co., Ltd., with total registered capital of RMB 2.90 billion. It is listed as one trial unit of 120 large-scale group enterprises by China, which is highly supported by Shanghai Municipal Government.
With the long-term development, SGEG has fostered famous world trade mark and brands both at home and abroad, which bears such Shanghai famous brands as "Jingxing", "Kaige", "Feiyue". Its products can be divided four categories with over thousand kinds of products. The four categories is a communication, household electrical appliance, computer and vacuum electron, including color TV set, computer, VCD, air conditioner, washing machine, refrigerator, video-camera, compact audio, mobile telephone, telephone set, microwave oven, picture tube, etc.
With the rapid development of information and automotive industry, the information industry, automotive electronics industry and new type display and lighting industry has been taken as a new priority development. Now SGEG is actively researching and developing satellite TV receiving system, network information system and terminal, graphic TV, DVD, DBS multi-lighting, etc. SGEG has a good relationship with the world top-level companies for its cooperation, such as Motorola, CISCO, and GI, etc."
Bix, I am still waiting for you to post the link to 2GHz computer that cost $700 apiece. I want to buy one immediately.
Gary, another question:
I have read the recent filing and read the following paragraph in Management's Discussion and Analysis of Plan of Operation:
"Networking and integration services will also continue to be in demand, and CBQ, in tandem with partners such as Lockheed-Martin and Verizon, will be a major player in the Mid-Atlantic market."
I have seen Verizon Global Networks listed as a client of Networkland and Lockheed-Martin listed as a client of CBQ Netserv, but I have no recollection of them having been mentioned as partners.
Can you direct me to any public information regarding the existing or planned partner relationship between CBQ and either of these companies?
Can you comment on this paragraph in the filing?
Thank you, Gary. This prompts additional questions:
1. Was this $500,000.00 order filled successfully?
2. Did the subtantial additional orders mentioned in the release ever materialize?
3. Can the name of the client now be revealed, or does the confidential covenant still prevent that?
4. What brand name was used on these white boxes?
5. What brand name will be used on the computers that CBQ sells through its distribution agreement with Superior?
Gary, I hope you had a good week. Although you say you have been very busy, I hope it is for good reasons (lots of investor/media interest in CBQ, Inc.
I have a question for you. I seem to remember early this year reading mention of a sizable sale by CBQ of white boxes to one client. I don't believe the client was mentioned. I tried to find record of this piece of business last week, but didn't have enough time to do a thorough search. Can you direct me to the source of this information and/or shed any light on this transaction.
It seems to me that it would speak to CBQ's experience in distribution of large lots of white boses, a capability that is being questioned in some quarters.
Gary, thanks for sharing your insight into the 10-Q. I am unable to read it this week, but appreciate your effort to share what you gleaned from it.
P.S. Nice job on the CNN-fn interview. Funny how not too many of the usual suspects on RB could bring themselves to talk about. Perhaps, they missed the PR.
EasySoft has some products of it own. It has a Chinese-language version of its EasyMarketPlace eCommerce software platform. It has also been working on its JEZ open-standards eCommerce engine.
Is the EMP software already sold in China. I seem to remember that they had a partner serving as their distribution arm in China?
Secondly, EasySoft has a close relationship with Acer. I would think that Dr. Wei Sun might want to tap that relationship for the hardware side of the house. Have you heard anything along those lines?
Also, Gary, the Tuesday release contained that nugget in it about CBQ exporting software to China through Topsoft, a member of its new China consortium. Are we going to see more about this with respect to some of the software products CBQ will be involved in exporting to China?
Gary, since you're hanging out online this Saturday morning, I guess I'll ask a couple of other questions.
First of all, how well advanced is the computer sales scenario? Is this something where we're going to have to wait months while they ramp up capabilities and develop their go-to-market strategy? Or might we see some deals announced now that the agreements have been signed with Legend and Superior?
Gary, have you gotten any contacts from other media companies regarding the latest deals CBQ has announced?
I'm betting that won't be the end of the news coverage for CBQ relating to the two most recent PRs. They may get a chance to issue a PR that mentions a number of media articles/events.
By the way, there is now news coverage on NewsFactorNetwork.com:
http://www.newsfactor.com/perl/story/?id=12852
U.S. Company To Import Chinese Computers
By Tim McDonald
NewsFactor Network
August 16, 2001
Chinese companies have sold computer components in the U.S., but have not yet sold computers in quantity.
Hunt Valley, Maryland-based company CBQ said Thursday that it plans to import Chinese personal computers, laptops and Internet appliances that will sell up to 40 percent cheaper than their equivalents in the U.S.
CBQ, which has been working primarily on software development services in China for U.S. clients, said it has agreements with two leading Chinese computer makers.
"The price differentials are stunning," CBQ chief executive officer Bart Fisher told NewsFactor Network. "It's going to make what is already a very competitive market more competitive."
Fisher said that CBQ has agreements with Legend Computers, the biggest computer maker in China, and Superior Computers, a smaller, privately-owned company in Bejing that makes notebooks.
Go Figure
Legend sells computers in Europe -- and has seven European offices -- as well as motherboards in the U.S. It has the largest share of the Asian-Pacific computer market, excluding Japan, according to research firm IDC, and recently opened an office in Freemont, California, Fisher said. Superior has previously sold monitors in the U.S.
Legend has a more than 30 percent share of the market in China, a country with nearly 1.5 billion people.
"They have a near-monopoly, but there's not much room for expansion, percentage-wise, for them in China," Fisher said. "They will have to export, so they're looking at the U.S. market, trying to figure it out."
Many Chinese companies have sold computer components in the U.S., such as motherboards and monitors, but have not yet sold computers in significant quantity.
Cheaper Laptops
Legend was started by the Chinese Academy of Scientists in 1984. Fisher said he toured the company's factories and claimed the quality of workmanship was impressive.
"There's a lot of inspection that goes on," he said. "The machine may stamp the motherboard, but the fact is it all has to be inspected by hand. In the 1960s, people made fun of the Japanese (products), saying it was junk, and you saw what happened with Japan. I'm sure people will denigrate the Chinese, too, but the fact is they'll find their computers work just great. There's no reason they can't sell here. They sell in Europe."
Fisher said the companies would offer laptops, such as those that now sell for around $1,300 in the U.S., for around $800.
Chinese at Comdex
There is no timetable yet as to when the Chinese computers will become available in the U.S. marketplace, but Fisher said both Asian companies will be at November's Comdex computer conference in Las Vegas, Nevada.
CBQ, which provides a variety of e-business technology services through its subsidiaries, earlier this week established a software development consortium in China.
The company recently hired Capital Suisse Securities as consultants to help with its move to the American Stock Exchange. Last year, CBQ merged with ChinaSoft, the private industry partner of the state-owned software development companies, and with Quantum Technology Group.
As of March 31st, CBQ reported total current assets of $1,734,000.
Dinucci, I am not worried about CBQ's survival. They eliminated their short-term debt, so far as I know (pending the 10Q), when they paid off the Suntrust note in June.
We'll find out in the filing to what extent (if any) costs have exceeded revenues. Personally, I am not holding out much hope that the picture the filing reveals will be rosy. The economy stinks worse than the downwind side of a hog farm and they are in the first quarter of post-merger integration of three acquisitions. I don't know of too many companies that have posted positive results for the second quarter.
At the same time, I am not averse to being surprised.
What I was told today is that the delayed 10-QSB will be filed by next Wednesday and that the long-delayed 8-K/A will be filed this week.