Thanks to Armin and his special skills, we have a lovely recap of our USF MBA China Study Tour. Enjoy!
Hey USFers, take this really fun and exciting survey about the trip! It’ll take roughly 34 seconds to complete. It really will be fun. Especially questions 1-10.
Helping people imagine, design, and create a better world.
Our last company visit was to Autodesk. There were 4 presenters, and I must say they sure do know how to grab the attention of a crowd. They kicked off the day by showing us this powerful video. No lie, I think a few of us got chills.
Pretty great right? I feel like the world is my oyster. Back to Autodesk. They specialize in 3D Design, Engineering and Entertainment Software. Think AutoCAD & Avatar. Yes, they are world leaders, head honchos, on top of their game.
Company facts/why Autodesk is awesome:
- Founded in 1982
- 6,600 employees
- 1,900 channel partners
- 10 million users in 187 countries
- 99 of the 2010 Fortune 100 companies use Autodesk products
- 15 Oscar winners for best visual effects have all used Autodesk software
- 1.2 million students are trained on Autodesk software each year
Thanks to their digital prototyping (DP) software, the California Academy of Science is the greenest museum on the planet. The above bulleted accomplishments are also due to their cutting edge technology and ability to be leaders in digital entertainment creation (DEC), building information modeling (BIM), and sustainable design.
They are also moving further into the consumer space with their mobile computing SketchBook Pro software, cloud computing product Homestyler (allows users to create virtual interior design projects), 3D printing capabilities, and advances in reality & virtual reality through 3D laser scanning.
Autodesk China R&D (ACRD) & Beyond:
The China Application Development Center (CADC) was established in 2003 and the ACRD was created in Shanghai in 2008. It is just three years later and they have more than 1,000 employees! Their 2010 revenue was $1.7 B and their cash & cash equivalents were $1.1 B. Asia makes up 23% of Autodesk’s business. Since the Asian market is 80% filled with piracy, their strategy is about gaining market share, not about revenue.
Do you really care about China or are you here to take advantage about how large they are?
Autodesk employees asked themselves this question and determined that in order to be truly successful in this marketplace, decisions need to be made that are in China’s best interest. They are not in China to capitalize on the opportunity while the market is hot. As you can tell from my bulleted list above, they are smart, strategic, and in it for the long haul.
Our trip to meet wire rope manufacturing company Gustav Wolf was an adventure! It was our first time outside of Shanghai and it was nice to see the countryside a bit as we drove through snowy weather to Suzhou.
We were met by the incredibly nice and friendly Hans Huber. Now not many people would think that learning about elevator wires is an especially riveting lesson, I have to admit it was very worthwhile. Gustav Wolf products were put into the worlds tallest residential building (located in Australia) as well as the Trump Tower (Chicago). They produce wire for elevators, mines, cranes, aircrafts, and other automotive companies. Their transportation customers are Otis, Aeroquipe, Kone, and Mannesmann. They were established in 1887. Yep, I said 1887. They sure know how to adapt with the times.
Why did this German-based company decide to do business in the golden banana?
Well in 2008 they saw an opportunity to focus on the local market in China and specialize in small to medium sized elevator systems. The growing economy and building growth gave Gustav Wolf the chance to supply OEM and distribution partners in the local Chinese market. Today Gustav Wolf has 6 facilities in 5 countries with over 700 employees.
We also learned that snow shovels are uncommon in these parts. If it does snow, the Gustav Wolf building might have 5 men on top of the roof shoveling off snow. Probably not 6 though.
The Chief Representative of China SVB met with us in Innovation Park (so hip, so modern) and provided our class with a lot of information on how the banking sector interacts with the Chinese government. Here are some photos of the discussion, including the supposedly rare snowfall. Thanks to Ruben, there were several Shanghainese that day to arrive at their car with a little message.
So I will try my best to take you on the same fact journey that we went on to learn about how China has developed in the past 10 years and how it compares to the United States.
- Before 2000 there were virtually no private equity or VC’s in China
- In 2010 there were 200 IPO’s by Chinese companies, way more than the US
- China has 2 stock exchanges, the Shenzhen stock exchange and the Shanghai stock exchange
- The PE multiplier is much higher in China than in the US
- The average American company takes 10 years to IPO (most companies do M&A’s)
- The average Chinese company takes 4 years to IPO.
- China wants to go from everything being ‘Made in China’ to “Invented in China’
- Part of the startup success in China is due to the fact that loans used to be extremely difficult to obtain. Banks used to ask, ‘Do you own property or land?’ No land, no loan. Nowadays, banks value IT and people as assets- and loan out money accordingly
- Result? There are 65,000 billionaires in China
- Low cost manufacturing is a thing of the past! Well, kind of. Nowadays the focus is leaning more towards innovation.
- A major problem in China is high housing, local people need low cost government housing. Bubble? What do you think?
- The income disparity is w i d e r – despite the standard of living increase.
- There was 250 million people living under poverty, now there is only 30-40 million.
- For every $1 bank deposit, the bank has to put 19.5 cents into their required reserve. So, if I deposit $100 into a Chinese bank they can only lend out $80.
- The government fears social unrest and works to have a minimum of 8% annual GDP growth to prevent rebellion.
- China is somewhat reluctant to play a role in international markets.
- Only 12% of GDP is dependent on exports
- The government is trying to increase consumption
- There is an ecosystem in the works for entrepreneurs. There isn’t really a sophisticated one in place right now. (Opportunity?!)
- There is a lot of competition amongst Chinese cities, regions, and the world. This offered up a LOT of insight as to the way China plays ball. Basically every Chinese city has its own government and money. Every quarter, each district governor meets and gets a report card based on where they stand compared to the total 11 districts. There is fierce competition to become ‘the best’, and the drawback is that if every district has the same goal (Ex; steel plant growth) then their will be over capacity issues in certain areas/industries. Otherwise, it has proven to be very powerful and effective.
Great speaker, good tea, good company. My fingers are tired from typing, confirming that we learned a lot during this presentation. Time for dumplings!
Our visit with Shui on Land and presentation by Robin taught us a lot about real estate and the level of control the government plays when it comes to owning land in China. Shui On Land was founded in 1971 by Vincent H.S. Lo, the ‘King of Relationships’ and the 16th richest man in Shanghai. It became listed on The Stock Exchange of Hong Kong in October 2006 and employees 1,300 individuals.
Shui On Land has a land bank of 13 million square metres (over 14 million yards) which is sufficient for 8 years of development. Their core competencies include master planning, property development, property investment, and property management.
Shui On Land created the clean and classy Xintiandi area, which is the cities more famous landmark and metaphor and model for growth with Shui On Land. The Xintiandi landmark was created to drive property value. Shui On Land wants to become the premiere innovative property developer in the PRC.
One interesting thing we learned is that most buildings in Shanghai (other than skyscrapers) are no higher than 34 floors. Once a building is taller than that, there are significantly more requirements that need to be met. This is to build sound structures capable of withstanding events such as an earthquake.
Robin told us that the company cares about three things: Knowledge, Innovation, and Community. What does the government care about? Well, she told us that too.
Basically, they don’t want people to buy property as investments, which explains why property down payments are about 40% for your first place, and about 60% for your second. (If you are wondering whether some people get ‘divorced’ in order to buy two houses for cheaper, they do.) The government also wants to provide affordable housing (to prevent a bubble burst). Chinese people don’t get interest from banks, and put all of their money into housing- even though they don’t ever get to actually own it. I guess they are used to it, but it must be frustrating for foreigners.
‘We never over promise. We always deliver.” – SWS motto
Our visit to Shenyin & Wanguo Securities Co., Ltd. taught us about the oldest securities company in China. It is over 20 years old and has over 3,000 employees! That is a lot of people. SWS has a market cap of 6.7 billion RMB and do everything from securities brokerage and securities investment consultation to offering financial advisory to businesses.
As the official unofficial gateway to China’s capital market, below is a more thorough breakdown of their core competencies:
- Proprietary Trading
- Asset Management
- Investment Banking
In the past 20 years the state owned enterprise has grown from having 500,000 shares to over 400 million, and was voted the ‘Best Brokerage Firm’ from 1990-2008 by AsiaMoney. I was impressed with the level of diversity the company has, especially for an SOE. Their staff is one third American, with individuals from Japanese, Taiwanese, Chinese and Korean decent making up the remaining staff.
The presentation also went into China’s economy and the capital market. If you are interested in the readers digest version, you are in good company. Fast facts are below:
Macropolicy as stated in the Central Economic Work Conference: China will improve macroeconomic regulation to ensure stability and growth to follow China’s marketplace.
Inflation: Driven by rising food prices caused by bad weather and natural disasters.
Consumption: 9.8% annual growth rate
RMB Appreciation: Intention is to increase the currencies flexibility and cause it to better reflect market supply and demand with reference to a basket of currencies.
Trade: China exports fell 16% in 2009, grew 30% in 2010, and expected to grow 15.5% in 2011.
12th 5-year Plan: Targeted sectors are alternative energy, biotech, new generation IT, and high end equipment manufacturing.