Businomics Blog

China's Export Machine: The "China Price" is Dead

Four months ago I wrote a post entitled "End of the China Price" which noted that China's inflation rate, plus the depreciation of the yuan, was making it harder for Chinese companies to undercut American manufacturers' prices.  Today the Wall Street Journal is saying the same thing (subscription required).

In addition to rising inflation and the falling yuan, the Journal mentions tighter labor regulations.  I've also heard that middle managers are in short supply.  Entrepreneurs can still find plenty of cheap labor (especially in rural areas), but they have trouble finding folks to delegate management responsibilities to.  Taxes are on the rise as well, more through enforcement than through rising tax rates.  And don't forget new costs (which always should have been spent) to monitor product quality.

China is not going away.  It's not a flash in the pan.  But the great shift of manufacturing from America to China will slow significantly in the coming years.

Business strategy for China:  it's still a major competitive threat, but here's what's new:

1. it's pricing is no longer unbeatable
2. there's more business in the local market--selling to the Chinese--than ever before.

Business Opportunities: Avoid the Glamorous

I'm staying at an Inn that's part of a vineyard/winery/spa.  My room is luxurious, with a view you wouldn't believe.  The food in the restaurant is top notch, and the wine excellent.  I'm enjoying myself, except for a nagging concern:  this joint don't cash flow.

There is no way on God's green earth that this business is making money.  Not even with strong appreciation of the land over the next two decades will it earn a halfway decent return.  It may not break even.  After the owner, who made his money the hard way, dies and passes this asset on to someone else, I can foresee it being shut down.  The beautiful cabins, lodge, tasting room, all falling into disrepair.

I don't begrudge the owner the opportunity to use his own wealth to be a vintner, inn-keeper and restarurteur.  But I do have some advice for the rest of you:  stay away from glamor industries.

The wine business in particular has attracted thousands of corporate refugees, loaded with stock-option wealth, who think it would be great to run a little winery.  If YOU get into this business, you'll be competing with people who are not making economic decisions, but rather lifestyle decisions.  One of the worst things that can happen to a business is to have stupid competitors.  Okay, maybe they are not stupid, but they certainly are not trying to maximize profits.

My advice to the young people looking for a career: how about wastewater treatment, portable toilet rental, drain un-plugging?  Think about something that nobody would go into except for profit motive.  Such industries have no excess capacity due to lifestyle choices.  It's just business.  Avoid the glamorous.

The Stressful Effects of a Weak Economy: What's a Business Manager to Do?

The weak economy is causing stress for many workers. In the Businomics Audio Magazine, Dale Collie, a former Army ranger and corporate executive talks about how to deal with stress, including lessons from both his business experience and Vietnam service.

        Dale's website is Courage Builders.

Economic Contingency Planning: Audio CD Available

Economic contingency planning is a hot topic these days.  I am now offering for sale an audio CD--play it in your car--or an MP3 download with an explanation of how business should plan for economic changes.  The CD/MP3 includes a bonus interview with Mark Thoma of Economist's View Blog talking about what we can expect in the future for recessions:  their frequency and severity.

Learn more, then place your order at the Businomics web site.  I'll also throw in FOR FREE the latest edition of the Businomics Audio Magazine.

AOL Does Not Understand the Trial and Error Economy

Fast Company magazine has a good article about AOL's troubles.  There are plenty of troubles to chronicle, but here's a particularly informative one:

In November [2006], search had posted 38.9 million visitors; by May, the figure was down to 35.2 million. [COO Ron] Grant zeroed in on the multimedia character of AOL query results: If you searched for "Radiohead," for instance, you would get not just text articles on the band but also images, video, and links to their songs. Grant saw this differentiation as a weakness -- it slowed load time, and the rich results meant that users were less likely to refine their searches, thus delivering below-average page views. He ordered a change to the page, making it look and operate exactly like Google's. Yet it turned out there were ways in which some users actually preferred the old format. It was certainly different, offering people a reason to go to AOL rather than Google. And the below-average page views could be seen as a sign that users were finding what they wanted the first time through. Also, according to former executives, the old search page actually produced more revenue per search than Google's.

In any case, changing the page backfired, badly. Search revenue fell to $156 million, from $232 million the previous quarter. As a result, AOL missed its revenue targets. "Management was blindsided by how disruptive the change to search was," says Pali Research analyst Richard Greenfield. "It's troubling that they didn't know what the impact of the search change would be.

What do you do if you think that your search results page--a big key to revenues--needs to be revamped?  Those who understand the Trial and Error economy test the idea.  One way is to roll out the new version for a small subset of the users, say one percent.  With 35 million visits, one percent is a pretty big sample.  Give the guinea pigs three little buttons on the right hand side of the screen:

1. I like it (just a vote, stay on the same page)
2. I hate it
3. I'd like to write a note about it.

That will get you valuable user feedback without jeopardizing your entire customer base.  I can imagine some folks liking the old screen, others liking the new screen, and some wanting to go back and forth.  That's pretty danged easy; let people change their default search results type.  Let them also specify for a particular search that they'd like the alternative to their default.

The big dogs should understand this, but just in case they don't, here's what the new puppies should say:  "Great idea, boss.  Would you like me to work out a little test-of-concept experiment?"  That's how to succeed in the Trial and Error economy.

Contingency Planning: Preparing for a Slump in Earnings

"Preparing for a Slump in Earnings" is a new article from the McKinsey Quarterly.  The authors estimate the corporate earnings could fall 20 to 40 percent this year.  The offer some suggestions for corporate executives preparing for a downturn.  These include both contingency planning for the downturn, and being prepared to take advantage of the slowdown to "hire talent, to continue spending on long-term strategic initiatives, and to target acquisitions."  Good points, similar to what I wrote in Businomics.

Small Businesses in an Economic Downturn

Jim Blasingame, the small business advocate, interviewed me for his radio show.  We talked about how small business owners should manage in an economic downturn.

Four Mistakes Businesses Make in a Recession

The Small Business Trends blog has an interesting article, Four Mistakes Entrepreneurs Make in a Recession (the title of which I've modified for the title of this post, for SEO reasons).

I'm going to add another mistake, but first let's review Scott Shane's four mistakes:

1.  Failing to take advantage of decreasing costs.  [good point; I made this in Businomics]
2.  Thinking the only way to increase demand is to cut price [also a good point]
3.  Failing to recognize increased competition.  [sometimes true, especially across normal industry lines; for instance, residential contractors may move into non-residential work when their sector weakens.]
4.  Forgetting that some products, or even whole businesses are counter-cyclical.  [Bad point; I'd challenge Scott to show hard data on any industry being counter cyclical; however it's certainly true that some industries are pretty much immune to recession ( health care) and other have cycles of their own not correlated with the economic cycle (agriculture) ]

Now let me add my own candidate for top four mistakes: discouragement.    Sales people don't have success with their calls. The sales staff is cut back, so the remaining reps become order takers.  Nobody's making cold calls or following up with past clients.  When the economy turns around, the sales people are still discouraged, waiting around for the phone to ring.  But it rings in the offices of the people who kept hustling through the recession.  My hunch: the biggest swings in market share occur at economic turning points.

(For more on this topic, see my comment on Seth Godin's comments.)

Is Recession the Opportunity of a Lifetime?

It's so much fun to disagree with Seth Godin.  I spend so much time on his blog admiring his insights that it's very rare for me to disagree.  But here's what he said about recession:

So, there's plenty of bad economic news floating around. From the price of oil to Wall Street to bailouts to the death of traditional advertising.

Which is great news for anyone hoping to grow or to make an impact.

Change (and the fortunes that go with it) is almost always made during the down part of the cycle. It might not be fun, but it's exciting. (Where do you think Google came from?) The opportunity is to find substantial opportunities (in any field) that deliver real value and have a future. Those jobs/investments/companies/ideas are undervalued right now, but not for long.

I definitely agree that there are plenty of opportunities, but here's my little quibble:  the best opportunities are not during expansions or contractions, but during turning points.  If you figured out that home prices would not grow to the sky two years ago (as my smart nephew did), you pocketed big money and sat immune to current problems.  But think about the next upturn.  All of the country's sales people will be discouraged.  Their ranks will have been cut back, so the ones still on the job will be simply taking orders.  They will be so discouraged that they won't be calling on new prospects.  And then the economic turnaround will come.  A small handful of sales people will call a prospect for the eighth or ninth time and find--they've got an order.  The customer's previous vendor hadn't called recently, so why not give the business to the hungry young kid?  And the hungry young kids of the country will clean up.  When the turning point comes, the opportunities will be abundant for those who have been out hustling.

So I imagine Seth will say to me, "You and I don't disagree at all.  It's the foundation laid in the recession that will lead to the great opportunities of at the turning point."  The only problem is, I'd really like to find something to disagree with him about.

Which is great news for anyone hoping to grow or to make an impact.

Change (and the fortunes that go with it) is almost always made during the down part of the cycle. It might not be fun, but it's exciting. (Where do you think Google came from?) The opportunity is to find substantial opportunities (in any field) that deliver real value and have a future. Those jobs/investments/companies/ideas are undervalued right now, but not for long.

The 20-Teens: Business Challenges and Opportunities in the Next Decade

What are the big changes coming in the next decade? Demographics, globalization, finance and technology are covered with a focus on what businesses should do today to prepare for tomorrow.

This is a new speech topic for me.  I've been weaving the components of this into my other speeches and writing, but decided it's time to pull it all together.

By the way, my most popular topic is "Conerly on the Economy: The Economic Outlook for 2008-09."  I also speak on "Freedom and Prosperity: the Case for Optimism."

Call me if you'd like to talk about a presentation to your management team, clientele, or trade association.