Charles Smith, the head of the Shanghai Rolex Masters, the 2009 and 2010 ATP Masters 1000 Tournament of the Year, treated the Warsaw Center to an in-depth Q&A (and some tennis trivia) at the tournament’s immaculate tennis center in Shanghai during our second week in China. Charles is in a situation that is a bit different from that of many other industry leaders with whom we met because they work for privately-owned agencies or properties, while the Rolex Masters tournament and venue is actually owned by a state-owned group, enabling Charles to have fewer governmental obstacles when it comes to ideas and changes he wants to enact at the center. The Rolex Masters is one of only eight Masters events in the world, and Charles explained that a study in the late 90’s showed that Chinese people viewed tennis as the most “aspirational” sport in China. To that end, Charles and his team were dedicated to making the tournament become an “aspirational” event. They signed only sponsors they considered brands people would aspire to have: Rolex; Mercedes Benz; and Heineken, among others. With partners that fit exactly what the tournament was aiming for, the tournament quickly became one of the hallmarks of China’s sports landscape.
This initial description of the tournament was followed by Charles’ insights into how they are improving the public’s knowledge of the game. Charles first explained how his group is trying to build interest among people who haven’t necessarily grown up with tennis and don’t play it recreationally or for leisure. To that end, Charles and his team are doing a few things to try and increase the audience for tennis in China. One endeavor is to get more people playing the game through efforts such as tennis camps and clinics. Another is putting a focus on the media because the more that Chinese journalists know about the game, the more inclined they will be to write and report about it. With this in mind, Charles and his team taught different members of the Chinese media how to play tennis and also helped them to get visas to travel to other countries so they could cover foreign tournaments.
Charles, who is also on the board of the ATP, concluded the visit with the Warsaw Center by discussing a hot topic in tennis, and sports in general, these days: gambling and who owns the data that gamblers bet on. Tennis is the second most bet-on sport in the world (in terms of gross figures), yet the ATP was not seeing a dime of that gambling money, even though sports betting is legal in most countries throughout the world. The tennis being played is under the ATP’s rules, being played in the ATP’s tournaments, and the data (i.e. points, faults, wins, and losses) are all considered to be proprietary for the ATP. In order to capitalize on its information being used by millions of people to bet billions of dollars, the ATP asserted its claim over its own data, and effectively sells the data to a re-sale company, who then sells the data to betting houses (i.e. Bet365 in England) throughout the world. This means that the ATP controls who gets the information from a tennis match, determines when they get it, and how they get it. It is a unique and newer business model putting money back in the ATP’s coffers.
The visit to the Rolex Masters was one that won’t soon be forgotten. It provided all of us with some incredible insights into how a world-class event is run, while leaving us trying to decipher how sports, betting, and data might one day be an issue that is just as relevant in the United States, as well.
Everyone has heard stories about the working conditions of overseas factories used by global brands such as Nike and Adidas. We recently had the chance to tour a production facility of NC Accessory, a full service headwear manufacturer in Shanghai, China. While there is tremendous reliance on human capital we also saw evidence of technological and mechanical investment by NCA. As a result increases in the cost of production coupled with increases in labor costs are leading to lower and lower margins for the manufacturer. The increase in production costs must be passed along the supply chain. Company representatives believe that this will ultimately lead to an increase in retail prices that will hit consumers’ wallets. The so called “China Price”, born from years of cheap labor costs, will disappear. Even as the production costs in China increase it is an ideal place for manufacturing based on the readymade infrastructure currently in place. Even with all this said currently it costs more to ship most goods from China that it does to produce them there.
NCA’s clients consist of firms with competing product lines. This complicates life for the manufacturer when a single production line can be making both Nike and Adidas hats. When clients visit the factory for quality control inspections NCA must ensure that none of the competing product lines can be seen by the visiting client. Another hot button issue that often comes up when discussing the Chinese economy is intellectual property. Because this can be so problematic for companies extreme security and caution is used to protect client’s brands. For each order place by the client they provide NCA with the exact number of product tags to fill the order. NCA cannot procure more that the allotted amount and for this reason constantly monitors the product tags and keep them under lock and key. Employees are searched upon leaving the facility to ensure theft of intellectual property does not occur. It will be interesting to see how these issues coupled with the trend of increasing production costs shape large multi-national companies’ strategy of where to produce goods moving forward.
A monstrous ‘O’ shaped building reminiscent of the University of Oregon logo looms over the crowded skyline of Beijing. A beacon of China’s modernization and technological advancement, the complex is the newly completed high-speed rail transportation hub. Cars, buses, metro and train all converge at the Beijing South Rail station. Our tour guide, smartly dressed much like an airplane stewardess, regaled us with many technical facts and figures about the station, building’s construction, and train operation. The roof area is over 940,000 sqm (over 10 million sqft). The train travels up to 380 km/hr (236 miles/hr). The ticket check systems are electronic. First class passengers have a special VIP Lounge with wifi access.
While the presentation may have been a bit dry, our passage on the train from Beijing to Shanghai was thrilling. We departed the city, gaining speed as we entered the countryside. The elevated track afforded great views of villages and agricultural fields. The smooth ride gave you the sensation of floating.
- Lauren Schwartz
Sustainable Business Practices
University of Oregon
MBA Candidate 2012
Buying anything in China can be an interesting experience. The first thing that struck me as I walked around Beijing and Shanghai was the sheer quantity of retailers. I saw some blocks with literally 10 convenience stores selling the exact same items. Unlike their American counterparts, these convenience stores were often a few hundred square feet or less, or in many cases, they would simply be a stall opening directly onto the street. One of the stores I saw often was FamilyMart. It’s a chain originating in Japan that has been opening about 100 new stores in China every year. The interesting thing about stores like FamilyMart is that they represent a very new and changing face of retailing in China. FamilyMart and its many counterparts present a clean, modern, and standardized shopping experience that diverges from the model of independent shopkeepers that has long dominated China.
On the far end of the spectrum, this new approach to retail in China is being explored and developed by corporations like Walmart. As of 2011, the American mega-retailer has opened 220 Supercenters in China, in addition to its other retail concepts such as Sam’s Club. I managed to visit a Walmart during our stay in Beijing and was surprised to see just how similar it was to any of its counterparts in the U.S. Perhaps the only thing that stood out to me was the grocery selection. Like any market in China, the Beijing Walmart was sure stock a shockingly diverse selection of fresh and preserved animal products.
While Walmart is one of the major players in China it holds only 6% market share among major hyper-/super-markets (the leader is Shanghai Balian with an 11% share). In other words, retail in China is still highly fractured and undergoing rapid change. It will be interesting to see what happens over the next decade as the preferences of Chinese consumers evolves, and in many respects, becomes more westernized. This shift in retailing is likely to have innumerable implications related to supply chain development, sustainability, and even land use planning.
-Andy Fenstermacher
Sustainable Business Practices
University of Oregon
MBA Candidate 2012
Warsaw students visit NBA China offices and Alum David Lee '91
On the first full day in the capital city of China, the Warsaw crew ventured through the subways of subterranean Beijing en route to NBA China. After braving the elements, namely rush hour on the subway, we arrived at the organization’s headquarters. The office had gymnasium-style floors throughout as well as various NBA jerseys serving as the décor. In the conference room, we met with Warsaw alumnus David Li, in addition to NBA China CFO Steve Richard and CEO David Shoemaker. During the formal presentation, Richard explained that NBA China’s primary mission is to grow and celebrate the game of basketball in China. He described the organization’s five pillars of business, which were: TV and digital media, including China Central Television (CCTV) and SINA; Marketing partnerships with domestic and international companies, including Peak, DongFeng, and Sprite; Merchandise; Events; and Miscellaneous, such as retail store licensing partnerships and arena development. Richard explained that some of NBA China’s partnerships were “bundled deals” where a brand sponsors the NBA both in the United States and in China. Also, he mentioned that there could be separate category sponsors for the NBA and NBA China (i.e. Lenovo in China, HP in the US). The executives also discussed the development of interactive social media, including a possible new venture into branded online subscriptions, where users could create accounts with individualized avatars and customizable video.
Shoemaker and Richard also described a 2008 initiative between the Chinese Basketball Association (CBA), NBA China and AEG to construct a series of NBA-style arenas throughout the country. The ultimate goal is have these arenas meet NBA standards and raise the level of basketball and the game-viewing experience in China. Upon being asked whether they felt a possible conflict of interest between building up the CBA and promoting the United States NBA, both executives asserted their sentiment that building and improving the CBA will make NBA China better able to sell and generate interest in the NBA. Additionally, Richard and Shoemaker reiterated many of the themes that the group had heard from other companies, such as concern over lack of participation in sport amongst youth, a poor understanding of the benefits of sport sponsorship, and the strained relationship between education and sport. In order to improve the latter, NBA China has founded the Dongguan basketball school, which is an educational facility for boys of grades 7-12 where kids get high-level schooling while training at an elite basketball facility. Overall, the Warsaw students’ experience at NBA China was a fantastic opportunity to further our understanding of the challenges of promoting American sport overseas.
The newly renamed Finance & Securities Analysis (FSAC) center recently travelled to China as part of the Engaging Asia study tour with the other centers in the Lundquist College of Business. Our new Managing Director Jeff DeBoer along with Randy Swangard were able to setup an outstanding line-up of companies and speakers for us to visit covering an array of areas from commercial & investment banking to corporate finance, equity research and real estate investment. A few highlights included:
Lunch with Intel Capital: we were able to spend time with the head of asia operations of Intel Capital and discuss technology investments over a Peking Duck lunch (a must the next time you are in Beijing)
Hua Mei Investments: the China based research analysts specializing in Reverse Take-Over (RTO) companies listed in the US provided a great framework for researching Chinese companies that are currently undervalued in the wake of recent accounting scandals.
Bank of China: representatives from the Bank of China spent the afternoon discussing the broad macro-environment in China as well as the specifics of commercial lending and central bank functioning in China.
Tektronix: we met with a great operations team in Shanghai and were able to go in depth on the financial implications of locating manufacturing in China and operational issues for multinationals with operations around the world.
Yum Brands: the fastest growing chain in China (KFC) is a case study in the way companies can shift the competitive balance in their industry by expanding the playing field and the financial benefits of making long-term investments in the face of skepticism.
New Frontier Investments: A new opportunity in China; real estate on 2nd and 3rd tier cities was offered by the head of New Frontier and over drinks afterward we were able to discuss living and working in China and what trade-offs to expect.
Head of the Shanghai CFA: we were able to have a great breakfast with the head of the CFA Society of Shanghai who offered candid career advice and shed light on the value of the CFA designation in the global marketplace.
We had a truly amazing time and the insights and questions our visit to China has brought about will definitely help shape the way we approach our careers and our understanding of the world.
On a sunny September 11th morning – my birthday! – our OMBA class found ourselves at Woodward Beijing, an action sports property on the outskirts of the city – quite a drive from our hotel. Woodward is an action sports and gymnastics company, which originated in the US, but has made its way to China. We toured and played around in the largest indoor skate/BMX park in the world, which features a full, competition-sized vert ramp in, along with foam pits for soft landings to tricks. This facility is located on a resort campus, which also offers golf, tennis, badminton, billiards, swimming, fishing, bowling, shuffleboard, an outdoor plaza, video games, and arts and crafts, as well as housing for 300+ people. Woodward is starting to expand training facilities to winter action sports and trampoline.
As of now, day trips to the park are the most common. At $10/day, and with shuttles running to the nearest subway stop 10 miles away, some kids in Beijing are able to make it out there on the weekends to enjoy action sports. The director explained to us that they are largely using Weibo (Chinese Twitter) for marketing purposes, putting on events periodically and drawing action sports athletes from all over China and the world.
Woodward Beijing is looking to camps and education for the future of the facility. It recently started digital media camps featuring film and photography, in addition to its action sports camps. This summer, Woodward Beijing had around 20 campers. The challenge has been getting parents on board and breaking the culture code in China, where there is a struggle to find time for sports and recreation in an atmosphere of the intense pressure to study and work. In order to appeal to parents, Woodward is also pursuing the education route by getting involved with Kaplan’s K-12 international online education so that its athletes can earn high school diplomas. Another big draw is that Woodward Beijing has the opportunity to bring a handful of kids to Woodward camps in the US – both video students and athletes. This appeals to parents, as many in China are now aiming to travel to the US at younger and younger ages, whereas this used to be the goal for post-graduate studies.
The future of this facility is still unclear. The government plans to build a huge airport around 20 minutes from the facility, so the land may be re-claimed for alternate uses. There could also be problems in the future due to the land value; Woodward passed on an offer to buy its land years ago, and now the price has skyrocketed. I hope that Woodward Beijing survives the fast-changing landscape in China, as it provides a fun and unique environment to pursue offbeat sports – and a fun stop on Warsaw’s China itinerary!
On Friday the Warsaw students were treated to a traditional Chinese meal by alum Yu Lei from Visa. She ordered all of the food for us, so there were many entrees that we would not otherwise have tried.
This was our first experience with the more exotic Chinese food, such as stewed fish heads and tails. It was an amazing experience to be able to try things that were outside of most of our comfort zones. We also quickly learned the golden rule of trying new food; don’t ask what it is before you try it, otherwise you might not be brave enough!
After the meal was over Yu Lei gave us a brief explanation of the difficulties that Visa is having within China. She explained that Visa is currently at odds with Chinese banks over the restrictions placed on the usage of Visa’s logo on debit and credit cards issued by the banks.
Because of this disagreement the Chinese government has restricted Visa and other U.S. based brands from issuing new debit or credit cards to Chinese customers. This means that as Visa’s current Chinese customer’s cards expire Visa is unable to issue them a new card, so they are losing clients daily. The Wall Street Journal recently covered the story.
Yu Lei explained that Google was in a similar situation with the Chinese government a few years ago and was able to regain their footing in the country by apologizing to the government. She gave no indication that Visa was planning a similar strategy, but the impression that I got from everyone that we met with in China was that you must have government on your side to compete effectively. If Visa wants to keep a presence there they may have to make accommodations to the Chinese Government.
The meeting was very interesting because Visa was the only company that we met with that was facing obvious challenges with government restrictions. Every other company was doing whatever was necessary to stay in the good graces of the government, whereas Visa is finding the market for its products severely restricted by government policy. I look forward to seeing how this turns out and see if Visa can effectively compete is what stands to be a massive market for cashless payment.
On our first day in Beijing, Richard Young from NFL China spent some time with the Warsaw Center providing us with an overview of the NFL’s outreach efforts in China. Young has spent 21 years in China in various capacities, breaking into the sports industry in 1992 with the WTA. Recognizing a void in the local market, he started a business selling the rights to media coverage of Chinese sporting events, which led to an 8 year stint with ESPN. After departing the Worldwide Leader, Young formed a consulting business with the NFL as one of his clients. This partnership led to his employment by the NFL where he now looks to grow the culture of sport and the game of American football in the Chinese market.
A common theme heard throughout our stay in China was the infancy of the country’s sports culture. Children do not grow up playing Little League Baseball or Rec League Basketball like they do in many Western countries. Sport simply has not been a major part of their culture, and this represents a challenge to sports marketers of any kind, especially those attempting to bring a “foreign” sport such as American Football to the market.
Young has been working to define whether the difference between Chinese and Western sport culture is actually a cultural difference or simply a traditional difference. Referencing the axiom “You like what you know; you don’t know what you like”, Young is working to educate this generation of first-time sports fans both to the personal virtues of sport and to the game of American Football.
Young has many hurdles to clear in adapting the NFL to the Chinese market. First and foremost, game times each week fall on Monday and Tuesday mornings in China, increasing the difficulty in attracting new fans. Additionally, individual teams are not allowed to market overseas, a practice with which organizations such as the New York Yankees have had great success in the Asian markets.
To combat some of these roadblocks, Young is working to identify the adopters and current American Football fans in China, market to them and encourage them to introduce the game to new fans. The NFL has also supported a University Flag Football program, which is in its second year and will help to educate the youth on the game itself and encourage sport participation. Additionally, the league is hosting NFL Experience days where people are able to come to an event to experience the sport for themselves, on their own turf.
The NFL is not the easiest sell in China. With a sports culture in its infancy and a drastically different market structure, the NFL is working to make in-roads to develop the sport globally, which has been a major focus of Roger Goodell’s commissionership. Young holds little to no hope of ever overtaking the country’s most popular sports, namely table tennis or volleyball, but that will not stop the league from aggressively trying to grow the game into the world’s largest emerging market.
Yesterday started off with an amazing morning at Wieden+Kennedy’s Shanghai office. For those who aren’t familiar,Wieden+Kennedy is one of the world’s premiere advertising agencies that works closely with Nike and is the agency behind the Old Spice commercials starring Isaiah Mustafa. We had the opportunity to look at case studies of innovative campaigns the agency put together for Converse and Nike geared specifically for the Chinese market. We also had a great conversation about the challenges of working with multinational companies to communicate their brand message to Chinese consumers. A key takeaway from the meeting is that the most important thing for creating a successful advertising campaign in China is to understand the culture. It’s a simple enough message, but incredibly easy to screw up. Interestingly, youth culture isn’t embraced in China as it is in the West. Businesses here are focused on who can spend money now.Wieden+Kennedy has been working to communicate with brands the importance of embracing youth in order to develop brand loyalty. Another interesting point had to do with the fact that rebellion, a hot selling point in the West, simply doesn’t fly here. The Chinese love their country, period. So rather than create “rebellious” advertising campaign’s,Wieden+Kennedy works to create campaigns that are a celebration of culture.
After a free afternoon to stroll the French Concession and munch on some baguettes and pastries, we loaded up on the bus to voyage to the far reaches of Pudong to visit with Columbia Sportswear at the YKK zipper company. I think a lot of us were a little skeptical about visiting a zipper company, but it turned out to be one of the most interesting visits of the trip. During the joint presentation, we learned about the supply chain relationship between the two companies. It’s an incredibly complex system that requires constant communication and relationship management. We then took a tour of the manufacturing facilities. While photos weren’t allowed on the plant floor, I can assure you this was about as high-tech an operation as it gets. For a zipper company, they are incredibly innovative. YKK, a Japanese company, invents its own machines to handle nearly every piece of the operation. Their focus is on quality and reliability, a recurring theme with nearly every company we met with. By focusing on excellence in manufacturing, YKK has gained nearly 45 percent of the marketplace value of zippers worldwide. Columbia alone uses 80 million zippers a year. That’s a lot of zippers!
