Open Thread Friday 7-3-2020

Let's look at three American corporations with significant influence in our society which expanded various parts of their business into China. Kentucky Fried Chicken (KFC) was the first fast food franchise to enter China. Google has made two attempts to enter the high tech market in China and exited. Nike first saw China as a source of cheap labor and later a major market for sales.

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KFC first restaurant in China was opened in Beijing in 1987. At the time KFC was owned by the American corporation PepsiCo.

Indeed, KFC enjoyed significant first-mover advantage when it kickstarted China’s fast-food restaurant industry in the 1980s. It beat out local Chinese competition in the 1990s because of its increasingly sophisticated management techniques. And when faced with rising domestic competition and maturing consumer tastes in the 2000s, KFC adapted with significant localization efforts to avoid obsolescence.
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Seen in the context of 40 years of reform and opening—during which KFC transformed from an expensive novelty to a market trailblazer to a localization pioneer to a first-among-many-equals in an intensely competitive industry—the latest spin-off of Yum China seems to simply signify the increasing, and perhaps inevitable, convergence of Chinese and American business.

KFC’s success in China must also be couched in the successful policies associated with reform and opening. China’s fast-food market would not be as developed without opening to KFC, and KFC’s business would not be as profitable without entering China. Trailblazers like KFC imported to China best practices on how to manage a restaurant chain, build a nationwide supply chain, and maintain high levels of customer service and dining experience. KFC also showed other American restaurants—like McDonald’s—that China’s market was possible to crack.
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As a result, same-store sales for Yum Brands’ China Division (of which KFC represented around 75% of the operating profit) declined 13% in 2013, 5% in 2014, and 4% in 2015. Yum attributed this dip to short-term consumer concerns, and demonstrated its long-term commitment to the China market by continuing to open hundreds of new stores each year.

KFC China’s fortunes began to turn around in 2016, when Yum China spun off from Yum Brands to focus entirely on the continued expansion of KFC and other restaurant concepts in the China market.

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How Google took on China—and lost in the MIT Technology Review

When www.google.cn launched in 2006, the company had gone public only two years before. The iPhone did not yet exist, nor did any Android-based smartphones. Google was about one-fifth as large and valuable as it is today, and the Chinese internet was seen as a backwater of knockoff products that were devoid of innovation. Google’s Chinese search engine represented the most controversial experiment to date in internet diplomacy. To get into China, the young company that had defined itself by the motto “Don’t be evil” agreed to censor the search results shown to Chinese users.

Central to that decision by Google leadership was a bet that by serving the market—even with a censored product—they could broaden the horizons of Chinese users and nudge the Chinese internet toward greater openness.
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On January 12, 2010, Google announced, “We have decided we are no longer willing to continue censoring our results on Google.cn, and so over the next few weeks we will be discussing with the Chinese government the basis on which we could operate an unfiltered search engine within the law, if at all.”
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But officials refused to cede ground. “China welcomes international Internet businesses developing services in China according to the law,” a foreign ministry spokeswoman told Reuters at the time. Government control of information was—and remains—central to Chinese Communist Party doctrine. Six months earlier, following riots in Xinjiang, the government had blocked Facebook, Twitter, and Google’s YouTube in one fell swoop, fortifying the “Great Firewall.” The government was making a bet: China and its technology sector did not need Google search to succeed.

Google soon abandoned google.cn, retreating to a Hong Kong–based search engine. In response, the Chinese government decided not to fully block services like Gmail and Google Maps, and for a while it allowed sporadic access from the mainland to the Hong Kong search engine too. The two sides settled into a tense stalemate.
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The Chinese government had pulled off an unexpected hat trick: locking out the Silicon Valley giants, censoring political speech, and still cultivating an internet that was controllable, profitable, and innovative.
AlphaGo your own way

With the Chinese internet blossoming and the government not backing down, Google began to search for ways back into China. It tried out less politically sensitive products—an “everything but search” strategy—but with mixed success.
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Despite the retrograde climate, Google capped off 2017 with a major announcement: the launch of a new AI research center in Beijing. Google Cloud’s Chinese-born chief scientist, Fei-Fei Li, would oversee the new center. “The science of AI has no borders,” she wrote in the announcement of the center’s launch. “Neither do its benefits.” (Li left Google in September 2018 and returned to Stanford University, where she is a professor.)
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In a speech to the Dragonfly team, later leaked by The Intercept, Ben Gomes, Google’s head of search, explained Google’s aims. China, he said, is “arguably the most interesting market in the world today.” Google was not just trying to make money by doing business in China, he said, but was after something bigger. “We need to understand what is happening there in order to inspire us,” he said. “China will teach us things that we don’t know.”
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Nike, an Oregon company has made its fortune using intellectual property laws, marketing and contract manufacturing to maximize profits. An early adapter of contracting with foreign manufacturers to keep labor costs low in Taiwan and South Korea.

The shoemaker was plagued with accusations that it used sweatshop labor all through the 1980s and 1990s until by 1998, Nike founder Phil Knight pledged to purge the company’s supply chain of sweatshop labor.
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When Nike was founded in 1972, the company contracted with factories in Taiwan and South Korea to manufacturer shoes and related goods. Over the next two decades, workers in these countries successfully lobbied their governments to win improved wages and the right to form labor unions. Faced with these new challenges, Nike moved much of their production to countries like China, Indonesia, and Vietnam, where it is illegal for workers to organize, and where wage rates are some of the lowest in the world.

This year Nike found itself in the middle of the Uighur issue.
China compels Uighurs to work in shoe factory that supplies Nike

After intense international criticism of the Communist Party’s campaign to forcibly assimilate the mostly Muslim Uighur minority by detaining more than a million people in reeducation camps, party officials said last year that most have “graduated” and been released.

But there is new evidence to show that the Chinese authorities are moving Uighurs into government-directed labor around the country as part of the central government’s “Xinjiang Aid” initiative. For the party, this would help meet its poverty-alleviation goals but also allow it to further control the Uighur population and break familial bonds.
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Security at the factory is tight. Factory administrators told a Post reporter this was a Nike requirement — Nike inspectors were visiting that day — but locals said it was also to monitor the Uighur workers.

“Some would say they use national-level security standards,” one of the street vendors said. “They keep a detailed account of the workers’ entries and exits, and they have to obey a strict schedule, coming to work or leaving the compound only at specific hours.”

Combining support for sports and slick marketing plans to create sales of shoes and apparel worked as well in China as the US.

Americans have dreamed of penetrating the elusive China market since traders began peddling opium to Chinese addicts in exchange for tea and spices in the 19th century. War and communism conspired to keep the Chinese poor and Westerners out. But with the rise of a newly affluent class and the rapid growth of the country's economy, the China market has become the fastest growing for almost any American company you can think of. Although Washington runs a huge trade deficit with Beijing, exports to China have risen 76% in the past three years. According to a survey by the American Chamber of Commerce, 3 out of 4 U.S. companies say their China operations are profitable; most say their margins are higher in China than elsewhere in the world. "For companies selling consumer items, a presence here is essential," says Jim Gradoville, chairman of the American Chamber in China.

The Chinese government may have a love-hate relationship with the West — eager for Western technology yet threatened by democracy — but for Chinese consumers, Western goods mean one thing: status. Chinese-made Lenovo (formerly Legend) computers used to outsell foreign competitors 2 to 1; now more expensive Dells are closing the gap. Foreign-made refrigerators are displacing Haier as the favorite in China's kitchens. Chinese dress in their baggiest jeans to sit at Starbucks, which has opened 100 outlets and plans hundreds more. China's biggest seller of athletic shoes, Li Ning, recently surrendered its top position to Nike, even though Nike's shoes — upwards of $100 a pair — cost twice as much. The new middle class "seeks Western culture," says Zhang Wanli, a social scientist at the Chinese Academy of Social Sciences. "Nike was smart because it didn't enter China selling usefulness, but selling status."

As recently as seven months ago Nike sales in China was leading growth for the company.

Nike Inc.’s second-quarter earnings results are proving the increasing importance of China to the brand.

The sportswear giant logged profits that surged 32% to $1.1 billion, or 70 cents per share, well above forecasts for earnings of 58 cents per share. Revenues advanced 10% year over year to $10.3 billion, topping analysts’ predictions of $10.1 billion.

One of Nike’s biggest takeaways in last 90 days was the performance of Greater China, which continued its streak of double-digit growth and saw quarterly sales jump 23% on a currency-neutral basis to lead growth in the Beaverton, Ore.-based firm’s international business.
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Market watchers were also positive on Nike’s Q2 growth. In a distribution note, Susquehanna Financial Group analyst Sam Poser explained that the political turmoil between China and the United States has not led to backlash from Chinese customers.

“Our checks indicate that the Nike brand is not perceived as a U.S. brand in China. Rather, Chinese consumers view Nike as a global athletic brand not associated with any particular country or part of the world,” he said. “Nike has been entrenched in China for over three decades and has deep-rooted, well-established relationships not only with the Chinese government, but perhaps more importantly with the Chinese consumer.”

This week the trade war and coronavirus appear to be making an impact.

Nike reported disappointing quarterly financial numbers Thursday, but Donahoe said the pending layoffs are not related to those poor results.

No one expected the company to enjoy a good quarter in the midst of a global pandemic. But few expected the company’s sales to decline by 40% or its losses to surpass $700 million.

Shares were down more than 7% Friday morning at $94.21. The stock has traded between $60 and $106.62 in the past year.

The reorganization isn’t about cutting costs, Donahoe said. It is intended to create a better environment for completing important tasks. Th subject line on his email to employees, a copy of which was obtained by The Oregonian, read “Transforming Nike Faster.”

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This series of blog posts on The Saker is long and excellent read for a deeper understanding of China's recent history and potential impact on the world. The author in his own description

By profession I’m an Engineer and Consultant, but my first love was and is History and Political Science. In retired life, I’m pursuing higher study in Economics.


Bridging China’s past with humanity’s future – Part 1

Bridging China’s past with humanity’s future – Part 2
Bridging China’s past with humanity’s future – Part 3

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Open thread all discussions are welcome.

Enjoy your 4th of July

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and the economy tanked in the early 90's (some wealth tax scheme) we were forced to close both of our factories there. It was a very expensive shut down, as the rules stipulated workers and contracts had to be honored for a full year after cease of operations. Margins were not that high, so it pretty much ruined the business. We eventually moved operations to Singapore.

Do not know how China works in relation to Taiwan, though assume the two countries share more than cultural values. Have since been offered positions in China, but declined as my Mandarin is zilch.

There are still several yacht builders in operation throughout Asia. The finer level of craftsmanship and lower level of labor costs keeps the higher end markets solvent, though many other countries vie for the mega-yacht market as well.

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studentofearth's picture

@QMS Chiang Kai-shek retreated to Taiwan when his US backed government was overran by Mao's forces in 1949. He declared Martial Law and the White Terror period had begun. His son Chiang Ching-kuo lifted Martial Law in 1987 opening the pathway to the current democratic government on the island.

The term "White Terror" in its broadest meaning refers to the entire period from 1947 to 1987.[4] Around 140,000 Taiwanese were imprisoned during this period, of whom from about 3,000 to 4,000 were executed for their real or perceived opposition to the Kuomintang (KMT, Chinese Nationalist Party) government led by Chiang Kai-shek.[2] Most actual prosecutions, though, took place in 1950–1953. Most of those prosecuted were labeled by the Kuomintang as "bandit spies [zh]", meaning spies for Chinese communists, and punished as such.

The KMT mostly imprisoned Taiwan's intellectual and social elite out of fear that they might resist KMT rule or sympathize with communism

Both China and Tiawan claim area in the South China Sea.

When Taiwan broke off from China in 1949 at the end of the Chinese Civil War, both governments claimed to be the rightful government of “China”. Taiwan established a constitution that included the full boundaries of what was considered at the time to be Chinese territory, and adopted the name “The Republic of China”. Since then, the People’s Republic of China has adjusted their borders and resolved many of the disputes, leaving Taiwan alone in holding up outdated border disputes.

Although these remain in the constitution, the government of Taiwan has not made moves towards most of these territories. For example, in 2002, the Taiwanese government excluded Mongolia from the administrative definition of “mainland area”, basically saying that they are acknowledging Mongolia as a separate country(though it’s still technically included in the constitution). In practice, Taiwan treats Mongolia as a functional government, with some creative loopholes used to avoid changing the constitution.

Were you caught up in George H Bush's luxury tax or a Taiwanese tax change?

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Still yourself, deep water can absorb many disturbances with minimal reaction.
--When the opening appears release yourself.

@studentofearth

Mainstream propaganda would have us believe Taiwan is a vassal state of the US empire. The former rulers of China fled to Taiwan to escape some palace coup. They still consider themselves as the true leaders of the old regime. Buying US weapons gives Taiwan some backbone, but somehow I doubt it is going to work out well when China overpowers the west. Like south Korea. Our 'friends' in the region may need to rethink their alignments as the US hegemony slips downward.

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Lookout's picture

“Fascism should more appropriately be called Corporatism because it is a merger of state and corporate power”

― Benito Mussolini

Here in the US, we have arrived. Now we try to export this approach. Glad to hear China is able to fend for itself.

Weeks of abnormally intense rains have wrought destruction across southern China, leaving at least 106 people dead or missing and affecting 15 million residents in the worst flooding that parts of the region have seen in decades.

https://www.nytimes.com/2020/07/03/world/asia/china-floods-rain.html

Busy AM already. Harvested the last of the lettuce and almost the last of the collards. Washed and currently drying them. Harvested lots of chanterells yesterday and washed them. Cooking and freezing them today.

Well better get to it. Thanks for the OT and corporate invasion of China info!

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“Until justice rolls down like water and righteousness like a mighty stream.”

studentofearth's picture

@Lookout without having to travel to a park or vacations spot. My blueberries are still green, still have a few weeks to wait. The strawberries and rhubarb have been tasty.

China has been able to watch how corporations took control of America. I beleive it effects their governing choices.

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Still yourself, deep water can absorb many disturbances with minimal reaction.
--When the opening appears release yourself.

lotlizard's picture

Smithsonian Institution anthropologist: “part of a system of justice” …

https://www.smithsonianmag.com/travel/sleeping-with-cannibals-128958913/

I ask Boas whether the Korowai eat people for any other reason or eat the bodies of enemies they’ve killed in battle. “Of course not,” he replies, giving me a funny look. “We don’t eat humans, we only eat khakhua.”

But then I think of our culture — “Trump is a khakhua!” “So is Biden—he ate Bernie from the inside and left nothing but ashes!” “All Republicans are khakhua!” “And most DNC Democrats, too!” — “All khops are khakhua!” — “Khakhua supremacy, khakhua privilege; Khakhua Klux Klan; United States of Ameri-khakhua…”

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@lotlizard

Are you saying the KFC chicken in Asia is really general pows
flavored khakhua? Secret spices finger twitching good.
Wink

P.S. beware tomorrow night the where wolves come out on a full moon eclipse.
Those popping noises may not be traditional 'fireworks' but heads
exploding as well.

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lotlizard's picture

@QMS  
http://scrapsfromtheloft.com/2020/06/11/stanley-ellin-the-specialty-of-t...

——

By the way, I’m seeing more and more TV, print, and web infotainment promoting insects as food. Adds yet another dimension to “GrubHub” as a brand…

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studentofearth's picture

@lotlizard Youth abandoning an existing cultural norms.

So it is with the Korowai. They have at most a generation left in their traditional culture—one that includes practices that admittedly strike us as abhorrent. Year by year the young men and women will drift to Yaniruma and other settlements until only aging clan members are left in the treehouses. And at that point Ginol's godly prophecy will reach its apocalyptic fulfillment, and thunder and earthquakes of a kind will destroy the old Korowai world forever.

We are civilized and don't eat our khakhua. Keep them around as the walking dead to infect the next leader.

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Still yourself, deep water can absorb many disturbances with minimal reaction.
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enhydra lutris's picture

How the hell could the Chinese people eat KFC food? I mean, really.

be well, have a good one, and a great fourth.

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That, in its essence, is fascism--ownership of government by an individual, by a group, or by any other controlling private power. -- Franklin D. Roosevelt --

lotlizard's picture

@enhydra lutris  
I guess the grease is always greener on the other side of the ocean, or sumpin’ …

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enhydra lutris's picture

@lotlizard

be well and have a good one.

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That, in its essence, is fascism--ownership of government by an individual, by a group, or by any other controlling private power. -- Franklin D. Roosevelt --

studentofearth's picture

@enhydra lutris and be the first invader into new territory.

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--When the opening appears release yourself.

enhydra lutris's picture

@studentofearth
Thanks soe. YUM, too, horrible company, I've been boycotting their brands for years.

be well and have a good one.

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That, in its essence, is fascism--ownership of government by an individual, by a group, or by any other controlling private power. -- Franklin D. Roosevelt --

gulfgal98's picture

Every day shows us just how much our leaders have failed the people. Instead of trying to keep people whole like most European nations did during the shutdown, our leadership used it as an excuse to loot the country. And now that the looting is nearly complete, we the people have basically been told that we are on our own to fend for ourselves against a pandemic that is only growing. Recently, there has been no better example than Florida which has topped over 178,000 cases according to official Florida website on COVID-19. The actual number of cases in Florida may be even higher.

For the last eight days, the daily number of new cases has averaged just under 8,000 per day statewide. In my home county which had been doing a fairly good job of containing the number of new cases, the numbers have exploded in the last two weeks with a new record high of 228 new cases set yesterday. That is over 40 cases more than the previous high set a couple of days earlier.

In most parts of Florida, the beaches are open and tourists are coming in droves. One small county in north Florida has had only two cases up to now, but according to the newspaper, all rentals are occupied and the beaches are crowded. It won't be long before that county experiences a marked upswing in new cases.

This is so depressing because it is showing such a lack of awareness or concern for the spread of this virus. We have not yet begun to peak either in Florida or in the country.

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"I don't want to run the empire, I want to bring it down!" ~ Dr. Cornel West

“Those who make peaceful revolution impossible will make violent revolution inevitable." ~ President John F. Kennedy

travelerxxx's picture

@gulfgal98

In most parts of Florida, the beaches are open and tourists are coming in droves. One small county in north Florida has had only two cases up to now, but according to the newspaper, all rentals are occupied and the beaches are crowded.

And so this problem extends well beyond Florida, as all these vacationers will shortly return to their homes ...up north. SUVs full of Typhoid Marys heading back to New York, Ohio, Pennsylvania, etc. All just in time for the reopening of schools...

I'm starting to think that the new cases are going to start to be shown as primarily Trump supporters. Hard for me to believe that anyone taking this pandemic seriously would head to the beaches for a vacation. I could be wrong, but I have been out and about enough to notice that the non-mask wearers and social mingle-ers seem to be hard core Trump supporters. Naturally, some are simply indestructible youth, but I've been watching carefully. I listen to the conversations, watch the bumper stickers on their vehicles, read the logos on their hats, etc. I think I'm mostly right about it, although it's still antidotal of course.

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gulfgal98's picture

@travelerxxx the single greatest age group that has tested positive is the 15-24 age group. They now account for nearly 50% of all positive tests in Leon County (Tallahassee). The county had done better than most counties in the state in containing the spread with most people voluntarily wearing masks before the county commission mandated them to do so.

What has been shocking to me is the anti-maskers who tend to be older and very belligerent about their right to spread the virus to everyone else. They see the wearing or not wearing of a mask as a political statement and we can lay the blame for that at the feet of the President and Vice President. I believe a lot of them are MAGA types and they disgust me to no end.

The youth are simply in the age of immortality and believe themselves to be invincible. It is not necessarily a political statement for them like it is for the anti maskers. Of course, the end result is the same...the unnecessary spreading of this virus. I personally believe we are past trying to contain it and can only hope for herd immunity, but that will come at the cost of many lives that should not have been lost.

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"I don't want to run the empire, I want to bring it down!" ~ Dr. Cornel West

“Those who make peaceful revolution impossible will make violent revolution inevitable." ~ President John F. Kennedy

travelerxxx's picture

@gulfgal98

The youth seem relatively unaffected at this point, but when I read of the doctors and scientists who are now suspicious that the virus lodges in various organs, I wonder whether our young people really are off the hook. Sadly, we're not likely to know whether this is true with proven and tested certainty for some time. I could take this thought further, but right now I'd rather not think about it. We have enough trouble...

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studentofearth's picture

@gulfgal98 it has infected all levels of American society and culture. We have had a similar problem of out of town visitors overwhelming rural areas without robust healthcare infrastructure. In many of these communities tourism is the primary business.

On the flip side, healthcare is a wealth extraction business. Our rural communities and patients are not volunteering for elective procedures at adequate volumes for the large healthcare conglomerates profit requirements, clinics and facilities are being closed.

I am in the process of replenishing supplies for an extended lock down or inventory supply problems. Actively working on improving immune system, monitor and minimize known health risks. Also have self treatment plans to hopefully keep any infection to a low level intensity. Wish I could be a little more upbeat.

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Still yourself, deep water can absorb many disturbances with minimal reaction.
--When the opening appears release yourself.