| Issue 78 |

Mina Seligman, VP of Marketing, Globes

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China Inc.: How the Rise of the Next Superpower Challenges America and the World / Ted C. Fishman / Scribner Publishers

The largest demographic migration in the history of humankind has been occurring in China in recent years: 300 million Chinese are leaving their indigenous rural agricultural areas and moving hundreds and thousands of kilometers to dwell and work in urban industrial areas. The book China Inc. tells their stories, and despite the fact that it was published in 2005, it is more relevant than ever, and explains the nature and magnitude of the changes that China is undergoing on its way to becoming the next global superpower, and its growing influence on the entire global economy.

 The book was written by journalist Ted C. Fishman, whose articles have been published in The New York Times, USA Today, and other prestigious newspapers and magazines, and who ran a trading company until 1992. The chapters in the book describe various aspects of the permutation that China is undergoing, and it highlights the economic implications from a Western perspective, and the cultural and social implications that the Chinese themselves are experiencing.

Take a typical household in a remote village in China, for example. The family lives there in a small and stark home, and receives a grant to cultivate agricultural crops in a plot the size of a medium-sized private swimming pool. The family members barely manage to get by, and they subsist mainly on what they manage to grow on their tiny plot of land. Their annual income, which is left after they have eaten the majority of what they have grown, bartered for essential commodities, and sold some produce for money, is… $2 per year. They therefore want to send one of their family members to work in the factories in the outskirts of one of the big cities (there are over 150 cities with over a million residents in China, compared to less than fifty such cities in the United States and Europe combined).

 The current starting wage in an industrial factory is approximately $1.2 per hour. This might sound like a preposterously low wage to you, but for the average rural family, this is an opportunity to cast off the shackles of poverty: each day, the family member will earn as much as the entire family would in 10 years working on their farm! However, it’s no easy feat sending a family member to the big city. This is a journey of hundreds or thousands of kilometers, requiring a paid train ticket, provisions for the journey, and expenses for the initial period in the city – until they find work and get their first paycheck. A loan of approximately $100 is required for these expenses, which the family receives from a local money lender. Such private loans (which cumulatively amount to tens of billions of dollars) are the main source of funding for this massive migration of hundreds of millions of Chinese from the village to the city.

And who are the guarantors for these loans? The family members that are left behind. If the family member that was sent to the city does not succeed in his endeavor and did not send money to his family in the village, the money lender moves in with the family, lives with them, eats their food, and uses their possessions as if they were his own. He will continue to do so until they recommence repaying the loan. And if the family member that was sent to the city succeeds? He sends money to repay the loan, to the welfare of his family in the village, and eventually – to bring additional family members to the city.

Think about Chinese industry. What’s the secret to its power? Is it the result of a cheap labor force? Apparently not. The minimum wage in China has increased over the years, and there are many countries where the minimum wage is cheaper. The secret to Chinese industry’s power is in the Chinese culture (focus, conservatism, and caution), and the immense size of the population.

For example: When Hong Dongyang, a Chinese entrepreneur from the Zhejiang Province began sewing socks with her home sewing machine and selling them from a small stand near her home, and her business grew, many more Chinese quickly imitated her out of a cautious and conservative approach that if it was working for her, then they should do the same. The result: her province became the sock capital of the world, with more than 8,000 sock manufacturers supplying approximately one third of the global sock consumption. Concurrently, the majority of sock manufacturers in the United States could not compete with the prices, and went bankrupt.

The Chinese-made socks were cheaper not only because of the relatively low work wages, but mainly because of other factors: the price of the raw materials for socks is cheaper (because the “sock capital of the world” has a size advantage – and local factories take advantage of it vis-à-vis their suppliers). In addition, the industrial costs (electricity, industrial buildings, etc.) are cheaper – because of subsidies from the Chinese government. Eventually, the conservatism and caution of this mammoth population creates a size advantage for the Chinese, and enables them to manufacture at costs that cannot be undermined.

The migration from the village to the city and the creation of their size advantage are only two of the processes described in Ted Fishman’s book. The book is written in an easy-to-read journalistic style that combines facts,personal stories, and business insights. This is a must-read if you want to understand the changes that China is undergoing, and how they affect us all, both as consumers and as businesspeople.

The Imperceptible Innovation
About safety caps and convenience caps

In a previous issue of this column I wrote about the invention of Listerine mouthwash. In the same context, I also wrote about Listerine’s safety cap, which children can’t open, and which unfortunately most adults can’t open either. This is an example of a classic safety standards design dilemma: on the one hand they are meant to prevent unwanted (or dangerous) use, and on the other hand, they are meant to still be convenient enough to use on a daily basis.

In Listerine’s case, by pressing on the smooth surface on both sides of the cap, the cap assumes an elliptical shape, and only then can it be twisted open. But if you don’t know this, and you don’t press on the smooth surfaces on opposite sides of the cap, it will stay closed and you will stay very frustrated. It may be safe, but it’s extremely inconvenient…

I was therefore pleased to see how Colgate solved the safety versus convenience dilemma. Its mouthwash bottle cap offers a similar safety mechanism: you have to press its sides to create an elliptic shape, and only then can you twist the cap and open the bottle. But, and this is what makes all the difference: instead of only two press spots, which are easy to overlook, Colgate’s mouthwash bottle cap has several striped areas that can be pressed. In fact, it doesn’t really matter where you press and twist, the cap will open. A small child won’t be able to do it, because pressing it with sufficient force and simultaneously twisting the cap are beyond his range of capabilities.

The small difference between the two caps creates a huge difference in the user experience. Both caps contain safety mechanisms that will prevent toddlers and young children from opening the bottle. However, the safety mechanism in Listerine’s cap may frustrate adults, while Colgate’s is transparent and imperceptible to adults.

Not every innovation is supposed to be conspicuous and perceptible: sometimes you need to put a lot of hard work and effort to invent and innovate so that the consumer doesn’t feel a thing.

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