What’s the “long-game” in the U.S.-China trade conflict?

The efforts to craft a new trade agreement with the People’s Republic of China have run into some pretty major roadblocks in recent weeks and months.

Things came to another inflection point this week when President Trump announced that new tariffs would be imposed on more Chinese goods imported into the United States. As of September 1, pretty much all categories of Chinese imports will now be subject to tariffs.

If we look at the impact the protracted impasse has had on markets, the repercussions are plain to see. One result we’ve seen is that China has dipped from making up the largest portion of trade with the United States to being in third place now, behind Mexico and Canada:

But what’s the long-term prognosis for a trade deal with China? Recent world (and USA) statistics point to softening of the economy, which could have negative consequences across the board.

When it comes to perspectives on economic and business matters involving China and the Pacific Rim, I like to check in with my brother, Nelson Nones, who has lived and worked in the Far East for more than 20 years.  He has first-hand experience working in the Chinese market and is keenly aware of the issues of intellectual property protection, which is a major bone of contention between the United States and China and is one of the factors in the trade negotiations.  (Nelson runs a software company which has chosen to forego the Chinese market because of regulations requiring software firms that set up a joint ventures with Chinese companies to disclose their source code — something his firm will never do.)

I asked Nelson to share his thoughts about what he sees happening in the coming months.  Here are his observations:

Chinese President Xi has a lot on his plate right now. It isn’t just the U.S. trade war but also the Hong Kong disturbances, U.S. arms sales to Taiwan, the U.S. sending warships through the Taiwan Strait and the South China Sea, and China’s domestic banking sector weakness, to name just some. Trump has also put President Xi in a tight spot by demanding (or getting) Xi’s assurances that China will buy more U.S. agricultural products and will enact legislation protecting foreign intellectual property.  

In spite of his very substantial power, I predict that Xi will have a very tough time ramming Trump’s conditions down the throats of his countrymen. 

I should mention that the biggest issue here is intellectual property protection. The draft agreement that China “almost” signed had assurances that IP protection laws will be enacted, but Xi apparently nixed that draft whereupon the Chinese government stated that no government can promise, when negotiating a treaty with a foreign country, to change its domestic laws.

Technically, they’re right. For example, President Trump can’t commit to changing U.S. laws because only the Congress can do that under the constitutional separation of powers. Similarly, on paper, only China’s National People’s Congress (the national legislature) can change Chinese laws, and President Xi is not a member of the National People’s Congress. (Of course, this explanation conveniently overlooks the fact that both the Presidency and the National People’s Congress are subservient to the Communist Party of China, and that Xi is the General Secretary of the Communist Party, but still it’s technically correct.)

In view of all this, the natural Chinese instinct is to wait … and in this case, wait until the 2020 U.S. election and see what happens. If Trump is defeated for re-election, then perhaps many of Xi’s problems will disappear magically. On the other hand, if Trump stays in office maybe the pain that Trump’s China trade policy is inflicting on U.S. businesses and consumers will force Trump to lighten up a bit.  

In other words, President Xi has much to gain and relatively little to lose by playing the waiting game for a while. 

As for U.S. tariffs, those are causing Chinese businesses to adapt their supply chains by routing them through other East and Southeast Asian countries which are not subject to the tariffs. For instance, instead of sending products straight to the U.S., Chinese manufacturers are sending products to Vietnam or Thailand where a tiny bit of additional work is done – just enough to qualify for a “Made in Vietnam” or “Made in Thailand” label. (This adaptation partially explains Thailand’s large trade surplus which has made the Thai Baht one of the world’s best-performing currencies this year.)  

These maneuvers actually provide a safety valve for both Xi and Trump. For Xi, it cushions the reduction in demand for Chinese exports. At the same time it puts some additional pressure on Trump because this type of safety valve does not really exist for U.S. exporters trying to evade reciprocal Chinese tariffs.  But on the plus side for Trump, it tends to dampen the impact of higher tariffs pushing up U.S. producer and consumer prices.

If you ask me to bottom-line this, the trade problems look more like a protracted siege than an episode of brinksmanship.

How the siege is resolved depends on how strong Trump’s position will be after the 2020 election. If the Democrats continue with their leftward lurch, then Xi will eventually have to cave because Trump’s position will be strong (I’d say a 65% probability of re-election). But if the Democrats come to their senses and Trump continues shooting himself in the foot, then he’s in real danger of losing the election and Xi will come up the big winner (I’d give this a 35% probability as of today). 

So there you have it: the prognosis from someone who is “on the ground” in East Asia.  What are your thoughts?  Are you in broad agreement or do you see things differently?  Please share your observations with other readers here.

Evidently, America isn’t in IKEA’s manufacturing future …

Going, going, gone …

Over the past several years, the political mantra has been that jobs are now coming back to the United States – particularly manufacturing ones.

That may well be. But this past week we’ve learned that IKEA plans to close its last remaining U.S. production facility.  The iconic home furnishings company has announced that it will be closing its manufacturing plant in Danville, Virginia by the end of the year.

The Danville plant makes wood-based furniture and furnishings for IKEA’s retail store outlets in the United States and Canada.

The reason for the plant closure, as it turns out, is a bit ironic. According to IKEA, high raw materials costs in North America are triggering the move, because those costs are actually significantly lower in Europe than they are here.  Even accounting for other input costs like labor that are higher in Europe, shifting production to Europe will keep product prices lower for U.S. retailers, IKEA claims.

So much for the notion that imports from Europe are overpriced compared to domestically produced ones!

The Danville plant isn’t even that old, either. Far from being some multi-story inefficient dinosaur left over from a half-century ago, the manufacturing facility opened only in 2008, making it only about a decade old.  At its peak the plant employed around 400 people.

IKEA made staff cuts or around 20% earlier in the year, before following up with this latest announcement that will wipe out 300 more jobs in a community that can scarcely withstand such large economic shocks.

With the closure of Danville, IKEA will still have more than 40 production plants operating around the world. It employs around 20,000 workers in those plants (out of a total workforce of ~160,000, most of which are employed in the company’s vast retail and distribution business activities).

So, it doesn’t appear that IKEA will be exiting the manufacturing sector anytime soon.  It’s just that … those manufacturing activities no longer include the United States.

As a certain well-known U.S. political leader might say, “Sad!”

Making sense of the conflicting narratives about China’s economic and political aspirations.

Astonishingly tone-deaf and factually questionable: “China is going to eat our lunch? Come on, man … they can’t even figure out how to deal with the fact that they have this great division between the China Sea and the mountains … in the west. They can’t figure out how they’re going to deal with the corruption that exists within the system. I mean, you know, they’re not bad folks, folks. But guess what? They’re not competition for us.” (Former Vice President Joe Biden, May 1, 2019)

In recent months, we’ve been hearing a wide range of views about China’s economic and political aspirations and their potential implications for the United States.

Some of the opinions being expressed seem to be polar opposites — such as President Donald Trump’s pronouncements that the United States has been “ripped off” by China for decades.  Contrast this with former Vice President Joe Biden’s dismissive contention that China represents no competition for the United States at all.

Several days ago, the political commentator Dick Morris published an op-ed piece in the Western Journal in which he seems to be nearly 100% “all-in” with the alarmists.

The column is titled Trump Is Waging (and Winning) a Peaceful World War III Against China.  My curiosity aroused, I decided to get in touch with my brother, Nelson Nones, who has lived and worked in the Far East for the past 20+ years. Being an American “on the ground” in countries like China, Taiwan, South Korea, Thailand and Malaysia gives Nelson an interesting perspective from which to be a “reality check” on the views we’re hearing locally.

I sent Nelson a link to the Morris op-ed and asked for his reaction. Here is what he communicated back to me: 

I think Dick Morris is correct to contend that the Chinese government’s long-term vision is bigger than just accumulating more wealth and power. In fact, I wrote about this topic in the book I co-authored with Janson Yap, when describing China’s “Belt and Road” initiatives as a geographic positioning threat to Singapore.

 I wrote:  

“As a land-based strategy, the SREB [Silk Road Economic Belt] promises greater long-term rewards for China than the MSR [Maritime Silk Road]; these would echo the impact of the completion of the first transcontinental railroad in 1869, which marked the beginning of the ascendancy of the U.S. to becoming one of the preeminent economic empires of all time.”

 The context here is, if you look back through history, the world’s most dominant economic empires were either terrestrial or maritime — but not both — until the U.S. came along. As I further wrote in the book:

“After gaining control over both strategic land and maritime trade routes with the completion of the Panama Canal in 1913, America became the first land-based and maritime economic empire in history; its dominance has spanned over a century, from 1916 to the present. Uncoincidentally, the American economic empire began when the Panama Canal was completed, but the Panama Canal has arguably contributed far less to America’s GDP than the country’s investments in transcontinental rail and road transportation infrastructure.” 

In short, I am absolutely sure China’s government aspires to overtake the U.S. as the world’s dominant terrestrial and maritime economic empire, and to hold that position for at least a century if not longer. But this would not be the first time in history that China has held such a position. 

For the historical context, refer to: http://fortune.com/2014/10/05/most-powerful-economic-empires-of-all-time/. There you will see that the U.S. produced half the world’s economic output in circa 1950. China’s Song Dynasty was the world’s preeminent economic empire in circa 1200 AD, producing 25% to 30% of global output. Only the U.S. and the Roman Empire have ever matched or exceeded that marker. 

I can tell you from my considerable experience on the ground in China that the strategic vision of its leaders is grounded in much more than just backward-looking grievance and necessity. Although the 19th Century Opium Wars (which were fought during the Qing Dynasty against the British Empire, and occurred during the period of the British Empire’s economic ascendancy) are often trotted out in China’s government-controlled English language dailies, the Chinese people I know have little or no knowledge of the Opium Wars or the colonial victimization China allegedly suffered a century and a half ago.  

But they are acutely aware, and genuinely proud, of China’s emergence as a leading economic powerhouse; and this is how the Chinese government maintains its legitimacy.   

China’s ambitions, in other words, have much more to do with reinstating its former glory (the Song Dynasty economic empire) than with righting wrongs (dominance by colonial powers), and are fundamental props for maintaining the Chinese Communist Party’s grip on power. 

This view renders many of Dick Morris’ comments unnecessarily hyperbolic; for example “[China’s] goal is to reduce the rest of the world to colonial or dominion status, controlled politically, socially, intellectually, and economically by China. In turn, China is run by a handful of men in Beijing who need not pay the slightest attention to the views of those they govern or the nations they dominate.”  

No, China’s goal is to become the world’s dominant economic empire but, just as the Americans before them, they don’t have to exert the same degree of control over the rest of the world as they do within their own territory to achieve this goal.  

And no, they require constant support from the Chinese population to achieve this goal, even though they run an authoritarian state. Why else would they devote so many resources to the “Great Chinese Firewall” if there is no need to “pay the slightest attention to the views of those they govern”? 

Yes, Trump’s trade war with China is important but his motive is to reverse the flow of jobs and capital out of the U.S. to China, which is not the same thing as launching an “economic World War III.” At a more practical and mundane level, it’s to fulfil a pile of campaign promises which Trump made when he was running for President, and to secure the loyalty of his base. 

_______________________________

So there you have it: the perspectives of someone “on the scene” in the Far East — holding a view that is more nuanced than the hyperbole of the alarmists, but also clear-eyed and miles apart from the head-in-the-sand naiveté of other politicians like Joe Biden.

Let’s also hope for a more meaningful and reality-based discourse on the topic of China in the coming months and years.

“Wake me when it’s over”: Corporate podcasting goes over like a zinc zeppelin with employee audiences.

Just because podcasts have become a popular means of communication in a broader sense doesn’t mean that they’re the slam-dunk tactic to successfully achieve every kind of communications objective. Still, that’s what an increasing number of large corporations have decided to do.

And yet … an article by writers Austen Hufford and Patrick McGroarty that appeared last week in The Wall Street Journal paints a picture of what many of us have suspected all along about podcasts that are produced by corporations for their employees and other “stakeholders.”

These self-important testaments to “corporate whatever” have as much impact as the printed memos of yore – you know, the ones with sky-high BS-meter ratings – had.

Which is to say … not much.

Invariably, podcast topics are ones which next to no one in the employee trenches cares anything about. As a result, corporate podcast open stats are abysmal – running between 10% and 15% if they’re lucky.

And the paltry open rates alone don’t tell the entire story. How many people are tuning them out after just a minute or two of listening, once it becomes clear that it’s yet another yawner of a topic that senior leadership deems “important” and that corporate communications departments try mightily but unsuccessfully to bring alive.

More often than not, the production values of these corporate podcasts have all the pizzazz of a cold mashed potato sandwich. Consider this breathless declaration by PR director Lindsay Colker in a December 18th Netflix podcast:

“I think that Netflix has taught me so much more than information about a job. The person that I was, coming into Netflix, is an entirely different person than the person I am now.”

This response, posted by a Netflix employee on the Apple iTunes store site, is all-too-predictable:

“Hard to follow, boring and dry hosts, and tooooo long.”

Or this recent American Airlines podcast that covered the company’s three major strategic objectives for 2019. After company president Robert Isom described the strategies for the podcast audience, host Ron DeFeo, an American Airlines communications vice president exclaimed, “That’s awesome!”

Employee reaction was far different. Here’s one response from an American Airlines pilot:

“How about you tell me why I should listen to this? A healthy employee doesn’t live and breathe their job 24/7, and the last thing they’re going to do after being on a plane for 12 hours is listen to a podcast.”

Ouch.

Perhaps because of this kind employee pushback, one company, Huntington Ingalls Industries, permits its workers to count the time they spend listening to the company’s podcast on their time sheets.

One suspects that absolutely every HII employee is posting 15 minutes on their timesheets each time a podcast is released – whether or not they’re actually listening to it. (That may also explain why each HII podcast is strictly limited to just 15 minutes in length …)

Every company interviewed by the writers of The Wall Street Journal story admitted that engagement levels with their corporate podcasts are disappointing.  PPG Industries’ response is illustrative.  With only a few hundred listeners tuning in each month out of a total employee base of more than 47,000 workers, “We have a ways to go,” admits Mark Silvey, PPG’s director of corporate communications.

What do you think? Will corporations find themselves riding a wave of success with their podcasting?  Or are they swimming upstream against the triple currents of apathy, ennui, and snark? Will corporate podcasting become tomorrow’s “obvious tactic” or end up being yesterday’s “glorious failure”? Feel free to share your perspectives with other readers.

Chief Marketing Officer: The most thankless job in the corporate world?

Few people I know would claim that being the Chief Marketing Officer of a company is a job without risks. Indeed, numerous articles in the business press point to an average length of tenure in a CMO position that is often measured in months rather than in years – indeed, the shortest length of time among all C-level jobs.

And now, a recently completed survey of CMOs  underscores just how wide-ranging the reasons are for those employment characteristics. Branding consulting firm Brand Keys tested a number of issues to see which are the ones that keep CMOs “awake at night.”

Three-quarters or more of the respondents to the Brand Keys survey reported that every factor presented was significant enough to cause them to lose sleep.  Leading the list with near-universal high-alert concern is ROI factors. Other factors of concern to nearly every respondent in the survey are big tech and data security issues.

Listed below is how each of the factors tested by Brand Keys turned out with CMOs in terms of “losing sleep” over them.

90%+ lose sleep worrying about:

  • ROI/ROMI factors
  • Big data, big tech and big security issues
  • Establishing trust with customers
  • Innovation, AI, technology and marketing automation developments
  • Consumer expectations regarding privacy and transparency

80%-90% lose sleep worrying about:

  • Managing social networking
  • Creating relevant advertising content
  • Successfully deploying predictive consumer behavior analytics/technologies
  • Dealing with consumer advocacy and social activism
  • Developing long-term strategies that align with corporate growth goals
  • Having the ability to engage with audiences – not just find them

At the “bottom” of the pile … 75%-80% lose sleep worrying about:

  • “Democratization” of the digital world and protecting brand equity within it
  • “Political tribalism” and its effect on brand reputation
  • Being relevant when tweeted about
  • Keeping consumers engaged with the brand
  • Creating better cross-platform synergies for marketing campaigns
  • Creating an “unlearning curve” to move away from legacy marketing metrics
  • Creating marketing synergies among different generational/age cohorts
  • Being replaced by the chief revenue officer

This last worry factor – losing their job – seems almost preordained given the tenuous circumstances more than a few CMOs deal with in their positions.

… and likely made more so because CMO’s are quick to be blamed when things don’t go well, even if they aren’t in the strongest position to effect the changes that may be needed. “Responsibility without authority” is the stark reality for too many of them.

What are your thoughts about the dynamics faced by CMOs in their companies?  Whether you speak from personal experience or not, I’m sure other readers would be interested in hearing your views.

 

Does “generational marketing” really matter in the B-to-B world?

For marketers working in certain industries, an interesting question is to what degree generational “dynamics” enter into the B-to-B buying decision-making process.

Traditionally, B-to-B market segmentation has been done along the lines of the size of the target company, its industry, where the company’s headquarters and offices are located, plus the job function or title of the most important audience targets within these other selection criteria.

By contrast, something like generational segmenting was deemed a far less significant factor in the B-to-B world.

But according to marketing and copywriting guru Bob Bly, things have changed with the growing importance of the millennial generation in B-to-B companies.

These are the people working in industrial/commercial enterprises who were born between 1980 and 2000, which places them roughly between the ages of 20 and 40 right now.

There are a lot of them. In fact, Google reports that there are more millennial-generation B-to-B buyers than any other single age group; they make up more than 45% of the overall employee base at these companies.

Even more significantly, one third of millennials working inside B-to-B firms represent the sole decision-makers for their company’s B-to-B purchases, while nearly three-fourths are involved in purchase decision-making or influencing to some degree.

But even with these shifts in employee makeup, is it really true that millennials in the B-to-B world go about evaluating and purchasing goods and services all that differently from their older counterparts?

Well, consider these common characteristics of millennials which set them apart:

  • Millennials consider relationships to be more important than the organization itself.
  • Millennials want to have a say in how work gets done.
  • Millennials value open, authentic and real-time information.

This last point in particular goes a long way towards explaining the rise in content marketing and why those types of promotional initiatives are often more effective than traditional advertising.

On the other hand … don’t let millennials’ stated preferences for text messaging over e-mail communications lead you down the wrong path. E-mail marketing continues to deliver one of the highest ROIs of any MarComm tactic – and it’s often the highest by a long stretch.

Underscoring this point, last year the Data & Marketing Association [aka Direct Marketing Association] published the results of a comparative analysis showing that e-mail marketing ROI outstripped social media and search engine marketing (SEM) ROI by a factor of 4-to-1.

So … it’s smart to be continually cognizant of changing trends and preferences. But never forget the famous French saying: Plus ça change, plus c’est la même chose

Family-owned companies: Do they continue to have the best business reputations?

While public perceptions of “greedy businesspeople” have always been part of the sociological landscape, over the years opinions about family businesses have tended to be more forgiving.

That perception appears to be holding. A newly published report reveals that people trust family businesses significantly more than businesses in general.

The trust levels are ~75% for family-owned businesses versus just 59% overall.

That finding comes from a survey of ~15,000 respondents age 18 or older conducted by research firm Edelman Intelligence, which is part of the Edelman marketing communications firm.

The research was conducted across 12 country markets and are contained in the 2017 Edelman Trust Barometer report.  In addition to the United States, the other country markets that were surveyed included:

  • Brazil
  • Canada
  • China
  • France
  • Germany
  • India
  • Indonesia
  • Italy
  • Mexico
  • Saudi Arabia
  • United Kingdom

Not only do the respondents in the Edelman survey trust family businesses more, they themselves would rather work for a family business.

Moreover, if they know a company is a family-run business, they’re three times more likely to be willing to pay more for its products or services.

Not everything is quite so positive, however. Compared to businesses in general, family-run businesses aren’t viewed as innovators (only ~15% compared to ~45%), or drivers of financial success (just ~15% vs. ~43%).

Even more discouraging is this finding:  Although in actuality family-run businesses are often major sources of philanthropy, only ~17% of the Edelman survey respondents view these companies as leaders in helping to address societal challenges. So, more work appears to be needed to attain the recognition that is deserved in this arena.

Another common perception – and this may be a more accurate one in reality – is that family-run businesses are skimpy in their willingness to share financial and other information about how their businesses are run.

But the most potentially harmful perception is the opinion the general public has about successive generations of family members managing family-run businesses. “Next-generation” CEOs are ~17% less trusted than founders.  They’re also considered far more likely to mismanage the business – not to mention being seen as less committed to the success of their enterprises.

In short, an inherited business, like inherited wealth, is viewed with suspicion by many people, and it’s more likely to be perceived as “undeserved.”

So, the portrait of family businesses isn’t completely rosy … but the reputation of these enterprises remains better than for businesses in general.

More information and key findings from the Edelman report can be found here.