Here is a dump of my notes. Will add more comments later
China is crucial juncture – from Shanghai
next phase food -> modernization
domestic harmonious society
Stable environment for development
China talent is important
Cadres important – talent can play bigger role
Talent is important – competitive in flat world – competition is competition of talent. Chinese government pays attention to talent.
1) more talented people in economic development
2) absorb more talented people from overseas
Contribute to China’s development and seek more opportunities for yourself.
Enwei Xie – Microsoft China
Innovated in China ; Innovated for the world
Server and tools business (China)
Microsoft China R&D Group
Redmond – Server and tools business – $10 billion revenue rapidly growing
Started doing china several years back – moved family a year and a half ago
Globalization is everywhere.
Cauasian in Iowa – 11 year old son is studying Chinese
Mission: To enable people and businesses throughout the world to release their full potential
Level of technology is amazing
Microsoft China R&D early 1990’s – talent pool
Basic research – 20 and 30 years down the road – multimedia, server,
2003 – Development centers
2006 – Formally formed Microsoft China R&D group
China – high-end innovation – take advantage of local knowledge
importance of partnership – technology innovation
Microsoft China in the news
Lenovo – home server – people will have multi-terabytes in their hoe
Amoy – Cell phone / mobile tech
Not China-specific. These products are global
China is open minded. No legacy. Good trial platform
Text to speech
Speech recognition is hard
Research – Microsoft Research Asia
Development – Microsoft Advance Technology Center
Chinese text to speech is listed as one of the top ten favorite local features
Not just technology innovation. Business model innovation.
Operational innovation. K-12 schools. How do we bring technology to
them? Software + services – China is a testing ground – China does
not have legacy IT.
US-based teams and China-based teams – Management differences
Ten years in Redmond. Shanghai 85% teams and joint development
Management – Emphasize management on values of company. No difference where you are at.
Cultural awareness. The way that you deliver value might be
different. Open respect. Contrast Chinese/American. US is open.
China is extremely respective. Meetings are boring. Not right to
challenge in open forum. But value is the same. More one and one
dialogue in meetings, more structure in meetings. Lead controversial
Anchor philosophy around company culture and be aware of regional
culture to match approach. Distributed development. What do you do
in a joint development environment. Lots of rotation programs.
Redmond to Shanghai and vice versa to increase awareness.
Compared to R&D development. Strengths and weakness of the four areas.
30+ years in making. Redmond-centric. China feels more like a start
up. Redmond more mature company.
Basic research – very good in China – Microsoft research is young – Application/customer focused.
Product development – many differnces – Shanghai challenge – lots of
raw talent – end to end – program managers – customer connection
interactions. Lacking programing managers and lacking design
capability. Weaker design capability. Leadership is interesting. US
based recruiting team – reaching out to leadership talent. Newly
Technical innovation – great
Strategic partnership – great – CEO in China. Corporate VP. Strong
in local relationship. Used to run Motorola China. Great. Better
Continuous development. Continuous maturity.
Xie Weihe – VP Qinghua University.
Higher education – Why does China develop so fast these years? A lot
of factors. Open policy. Long term reform in political economy and
total system. But not in this area.
Talent is one factor to improve development. Develop very fast in
higher education and basic education. Also promotes economic
1911 – School
1928 – NTU
1937-1947 – Southwest Associated University
1952 – Became a multi-disciplinary university of technology –
non-technology moved to Beijing
1978 – 2000 back to comprehensive
Management – close relationship to Sloan school
26000+ total students
2000+ international students from 75 countrial
Knowledge, Ability, quality
* solid and broad fundamental for future careers
* learning by doing
* dealing with practical
Actions in improving education quality
Salvendy -> operational management (roundtable)
English Summer Camp
Recruiting best teaching staff
* chair professors
* 100 talents recruiting project
* senior visiting scholar program
Motivating potential young talents in our faculties
* awards to junior faculty
Research-oriented teaching system
– Reduce undergraduate credits from 200 to 170 – get students to do what they like
* Early research training – Student Research Training for undergraduates
* Freshman seminar – small size classes for freshmen
* doctoral student’s forum – a lot of international
Tailored programs from students who have specific interests
science class on math-physics
* Second bachelor degree
* subsidiary major
* credits for social practice and internship
* initiated challenge cup in 1989
* innovative design competitions participated in all students in China every year
* participate in worked
Student creative work
Internationalize of education
* joint degree programs
* 1500 students/year going abroad
* English summer camp
English Masters Programs (2007-2008) in nine disciplines
Lots of research projects – Interested in numbers
Research fund – 14.9 yi RMB Yuan
Fuel cell city bus
clean combustion in coal
first biochip with electric and magnetic
largest ipv6 in the world
reconstruction old city – how to keep old style
dams and reservious
technology transfer – container development
distance education program: aiding the poor
* 113 distance education stations
* trained 300000 local people
volunteer to rural areas in summers
450 volunteers to teach
70-80 American students
2006-2010 Five year plans
1994-2002 adjusting disclipline structure
2003-2011 making breaking throughts in some fields
2012-2020 overall upgrading to world levels
Developing key disciplines
* Fostering new research areas
* brain and recognition
Research original teaching systems
* Student scale – Qinghua cannot increase. 20 years ago Qinghua was
biggest. Today Qinghua is 20th place
* Promoting the advantages
* teaching students according to aptitude
* encourage English
* two more
* Uplifting the level of graduate students
* developing international student programs
Balance between research and teaching
* More attention to teaching
Not to divide the two !!!! Even at the undergraduate level – emphasis
research oriented teaching. Offer opportunities for students to do
student research training. Students apply for student 1500
To start a sucessful venture
Program or service
How to start a successful venture
Good venture – need all four
* product and service
* management execution
Not just three engineers
What type of company?
Inc or LLC
What kind of business. There is no answer. You need friendly
pro-business support. Delaware – very good pro-business and
administrative support in filing.
NJ new stock – five days to get stock
Delaware – one minute – filing is done
close – file – one minute is done
Huge mistake – Delaware company – audit should move overseas. China
gives good tax incentives, but US doesn’t recognize since there is no
US – sales immediate recognize profit
Move out to overseas – Can’t do this because reason is for tax purpose.
This is why all US-based company for China is based in Cayman. This
separates tax code. legal code separate. mix legal code is a big
Most people want to create wonder product – Very, very rare to create
Type of product:
– new venture is vulnerable to high risk product
* Starbucks – successful – traditional – very good management and execution
* Starbucks get people in China to drink coffee
* Tea – one year after starbuck failed
* new product – add very little component to be successful. Scully
bad. Jobs back. Only thing he did was to change color and triple
sales. Appeals to students and artists.
Ipod is just an MP3 product. Iphone just put an I in front.
Add a little bit. Marketing. Jobs is a marketing guy.
Start on giant shoulders. Do everything high risk
* Don’t be copycat. No copycat wins. Wahaha. Feichang Cola –
exactly same design five stars. collapse failed. What is this?
* Copy McDonald’s and KFC – exactly American Eagle, Texas Fried
Chicken. Overnight foreign once every one disappears. Nancy same
design – three months gone Don’t copy. It doesn’t work.
* New concept. Very few suceess. The man that said no to bill gates.
Just moved to Redmond, Bill Gates rode bicycle. Got offer. Basic
compiler. Bad. Lousy salary $20,000 + options. What is options?
Not going to do it. Bill Gates is good businessman. 1990 – Bill
Gates lousy window system. Why? Timing. Very good time. PC
* Marines or Army – Marines take beach. Sooner or later you get
* Cost of waiting. When you create a new product. You don’t know
when people will accept. This will kill you.
City Vehicle – Very successful – Local codes – noise and dust
Seyour Cray – successful developer – never successful – no market –
can’t sell outside the US
Hupao – spring very good mineral water.
Qingdao hu – license – Nongfu sanquan – Water very good marketing
**** How do we enter into market?
Santong – gift
Naobaijing – Manatoni – starch with highly manatoni
HongtaoK – Iron – Geritol – ethics-wise suspect – good business – iron
Marketing – name brand makes a difference
Second brother —–> Xiao lingtong
+ out of packet
+ angel investment
+ friend and family
+ venture captial
+ private equity/ bank loan
+ public listing
+ Dilution and valuation
Take the money and run. Money today is better than money tomorrow
Don’t get greedy.
Already got money so they survive when they cash.
Don’t be venture if you want to make money. Risk is too high. You
need challenge, enjoyment and challenge, and effort.
Hunan Weishi – no just copy – No real time broadcasting. American
Huge political issues
Implementation and execution – plan and ground work –
Finance and Venture Capital
Global liquidity flush
* Rising equity markets around the world
* Increasing M&A activities
* Booming Asian economics
* Global economic integration
Asian financial crisis – And now outforming
China has done the worst – Strong economics does not translate into stock
Reversion to mean
Base for other financial activities
Increasing trend in M&A
Surge in volume. How long it will last?
FDI into China. $60 billion/year
Increasing Business and Capital market efficient
* Compnaies more focused and more efficient
* Cross-border capital flows make large scale corporate transactions possible
* Increasing global talent pool and management expertise
* Global VC firms tends to have higher risk tolerance and require
lower expected returns: investment portfolio theory
* China local firms – systematic risk higher lower capital base. But
small is neautiful
Requirement for successful venture capitalists
* science and technology expertise
* knowledge about business operations
* financial resources
* extensive business and social networks – information asymmetry greater
* Be curious
* Be critical
* Be creative
* Be open-minded
* Know how to deal with failures – normal in equity / log normal in VC
Chinese Reverse Merger Mania – Is there a better way?
Chinese manufacturer do reverse merger into shell corporation.
Reverse mergers have bad reputation associated with pump and dump schemes.
Most Chinese companies linger.
The Real opportunity
Lenovo and Haier figured it is possible to build a real business in
Among the various forms are through acquisation.
Strong sales networks and operations in decline because of high
They are willing to fund acquisitions by Chinese manufacturers.
Software development, automotive components, textiles and plastics to
name a few sectors. Structure operations through American companies.
BVI Caymans, now Barbodos. Chinese operations invest a US business.
American firms excels at sales, marketing, management – as well as
Comparative advantage resides mainly in highly efficient and (more and
more) high quality manufactyuring.
Unfortunately, over-competitation in China has led in many cases to
the trap of low margin OEM manufacturing.
Chinese manufacturers can play from their strength and acquire capabilities in the area their greatest weakness by acquiring US companies.
Fastest and most reliable way to develop effective markets in the US
is to buy companies who already established in the US.
Guangxi is important in the United States.
Growth capital fund
Private equity fund – investing in non-listed companies
Blackstone, CPG, KKR – Leverage buyout funds.
GP and LP
1% and 99%
20% – 80%
How do you add values? Operational enhancement.
Who invests in. Endowments/Foundations. Yale is investing in PE.
What invest in PE? S&P 500 – 10% (20 year) and 14%
PE starting from scratch.
Blackstone KKR – $20-$30 billion buyout
BTU – A private equity firm in China’s energy industry
BTU Asset portfolio.
Waltham, Dubai, UAE
leverage energy and capital to meeting demand of energy markets
CPC – Power company in Tunisia
TAPCO – Abu Dhubai – largest desalization in the world
MPC – 18 power plants
MPC – 8322 Megawatt from PESG
Capacity increased 78%. Revnue growth 50%.
Project pipeline – install capacity to 20,000 MW
– per capita 20% of the US, 30% of Japan in 2005
– elasticity/GDP growth in 1
– petrochemical complex
China LLDPE demand and supply
Downstream integration into Asian gas market
LNG regasification and gas distribution
Masthead – Venture capital trends in China
* manufacturing giant
* large market with an exciting pace of growth
* long term
* Engineering theory as opposed to application
* Poor English skills
* Amount and depth of quality management is sorely lacking. Few good
teams. Entrepreneurs tend to be technical strong
* Lack of IP protection
* immature economy – inability to invest and divest
* legal enviroment
14 overseas IPO’s
62 M&A 161.2 million
* technology media telecom
* moving to energy/educaqtion
* VC look for team, market, differentiation
* vc target millde class
* In Beijing and Shanghai starting to move to other areas
* Continued improvements in exit. Partnership Enterprise Law of PRC legal
* Shenzhen GEM.
3i – global investor, local partner
technology is a global business
venture capital is a local cottage industry
$2m to $1 billion buyout.
FTSE 100 with $11 billion assets
Formed in 1945, invested in $31 billion over 14000 business
15M to 150M in growth capital – professionalize board
Value add. Global network. We can get companies to get from one area
Why 3i is in China. Based in UK. China is the fastest growing.
Ambitious, high-calibre management teams to grow their businesses.
Open to co-investing, prefer lead or co-lead involving representation
on the board.
CNOOC – negative case
Areas that would be difficult to acquire
Competition within the market in the United States
+ Huawei entry
Business takes place using hardball lawyers advancing business
interests. Lawyers not only structuring, but also offensively. IP
case easy to make politically regardless of merits.
Higher profile – more difficult
Lower profile – relatively straightforward
Sensitive – defense
Less senstive – auto parts
Appliance have good futures
Auto – PR, consumer expectations
Strategic understand markets – good advisors
Better than other development countries – 1.0 elasticity versus 1.5
Evil stories in VC. Looking for China. How do get to VC company?
What do you expect from VC.
We are VC. Certain things they look for. We have websites. Through
networks afriends of friends. We will try to help. Get in. Start
talking to people.
Lots of rhetoric. VC stealing companies. Some good. Some bad. Do
your due dilegience.
I get two questions
1) I want to VC
2) I want to startup
PE is not something you study. Go out and do it. People. People.
People. Business plan and talk to investors. Swamped with business
plans is our jobs, and we like it.
Balance between expartiates and local. Vetcorp. Find blend is the
best. Requires a lot of different type of people. We need to change
people quickly if necessary. We changed director operations, and we
didn’t need to change them quickly.
Brand management of acquired company. Not the same in every case.
But see if the target company will help you market your products. Are
there any companies I’m currently an OEM for.
Importance of working with advisors. Chinese companies weakness,
reluctance to hire consultants. Look at how people in field.
If it a sunset industry is this a good strategy. Lenovo did they pay
too much money. Important for Chinese to develop their own brand.
Understand value chain and get higher margin from brand management and
strong financing, that Chinese companies have less of. Hard to teach
elephant to dance.
What do we need to be IBM and google.
Talk part of capital markets. Next google, In new media, not too much
regulation. New media.
Regulation, favor you need to Chinese company.
Grow up intelligently. Pay people at exit markets. Reverse merger
get too big too fast.
Starting to happen with Lenovo. Brand management. Professional
China Economy and Societal Development
Rose Luwei Luqiu
Starbucks and VT killing
Starbucks in Forbidden City
Dannone vs Zong Qinghou
VT killing and China
Chicago Sun-Times thought this was Chinese
* Self-confident or nationalism
* pride or inferiority
* populist nationalism
What are Chinese most concerned?
* Health care
Rich and poor
What Chinese need?
Social justice and equality
Media = Watchdog ?
The power of bloggers in China
– One other outlet for people’s responses
– need portal to back you
Energy and Nuclear Energy program in China
1) Quick view on Energy in China
High energy intensity
1) low high value added products
2) high proporation of industries in high energy
3) efficiency low
energy consumption per capita only half of world average
* car and houosing
* growth of heavy and chemical industries
increase of oil import
2) Nuclear power strategy
1) Advanced PWR technologies
2) development of generation IV nuclear reactor
3) R7D on fusion
operating 5 plants, 9 units 6.7 gw
10 units with capacity of 9.3 GW
2020 – 4% – 40 GW
2035 – 16%
24 units of 1GMe level to come onlie
R&D of HTR
10 MW HTGCR – 863 (Follow)
HTR-GT 0 Under construction
HTR-10 with Gas Turbine – 863 (innovate)
HTR-PM – peeble bed
Key experiment: trip of helium circulator
HTR-10GT 2008 operation
HTR-PM – 2012 National key project
Standard design and proven technology
Need different kind of energy needed to couple with economic developo
Nuclear energy has to play more improtant role and has bright future
China is making great contribution to the development of advanced
Way of Urbanization in China – Deng Wei
Everyone needs owns a house. Everyone rents a house.
House ownership very high. Because transfer of ownership from
Land is not property, but building is property.
House price from low wages
Price of the houses will rise due to urbanization. Not limit prices.
Media gives people a realistic view of the world, and that will give
turn nationalism to patriotism.
Non-market mechanisms don’t work. What the government should do is to
sell houses and use income to fund low include.