Friday, February 24, 2012

Morning:

Citicorp Software and Technology Services

Hujiang.com

Zuchongzhi in Shanghai Pudong

Afternoon:

Shanghai Pudong Software Technologies Services Co.

Shanghai Isvision Technologies Co. Ltd.

Guoshoujing Park in Shanghai Pudong Software Park

Citicorp Software and Technology Services

Paula Runesson | MBA Student

We were unable to meet with representatives from Citigroup, but did visit companies in the software park. Here is information from their website.Citicorp Software and Technology Services (Shanghai) Limited ( “CSTS” ), a subsidiary of Citibank N.A. and a member of Citi, was established in August 2002 in China to provide software development and technology services for Citi businesses worldwide.

Our company is headquartered in Shanghai with one branch in Dalian.

Citi is
today’s pre-eminent financial services company, with some 200 million-customer accounts in more than 100 countries. You can obtain more information about Citi at www.citigroup.com or Citibank China at www.citibank.com.cn.

• History

With China’s entry to WTO, China’s government has identified key areas for economic growth. To demonstrate our commitment to support and participate in China’s growth and development, in 2002 Citi established Citicorp Software and Technology Services (Shanghai) Limited ( “CSTS” ) to further develop the Chinese market for software development and related technical services through the introduction of advanced methods and technology in financial services.

Our vision, our local talent, our world-class facilities, and our global franchise and expertise make CSTS an important contributor to the
development of China’s IT sector and an important support element of Citi’s global operations.

The history of Citi has 100 years in Asia. Our history dates back to the founding of Citibank in 1812, Bank Handlowy in 1870, Smith Barney in 1873, Banamex in 1884, and Salomon Brothers in 1910.

• Vision

To become a “Center of Excellence” in providing banking software and technology services for Citigroup and for China financial industry.

• Mission

Building People, Creating Value

Building Structure, Creating Quality

Shanghai Pudong Software Park

Paula Runesson | MBA Student

We met in the hotel lobby at 8.30am prepared for our last day of business visits in Shanghai. The van heads out to the Shanghai Pudong Software Park located close to the city.  It was established in 1992 and has over one hundred domestic and
foreign software enterprises such as SAP, AIG and Sony. The companies are located around a manmade lake with a lot of vegetation.

Xiaoqiang Shen and Cynthia Zheng meet us in the lobby. Mr Shen explains that he is a good friend of the father of a prior CLU student. It seems though “guanxi” – connection is everything in this city.

As we arrive a few minutes early we have time for coffee before our first meeting. The coffee stand is an image of Starbucks but of course with a different name, but a suspiciously similar logo.

Hujiang.com

We first visit Hujiang.com, a company offering on-line language courses. Jerry and Vivien greet us as we enter into their office area. Jerry exudes enthusiasm about the company. He starts talking, and Vivian translates, as we walk through the office area were the developers creating the language software are working. Most of them are young and were hired right out of college. They are lined up in narrow rows but seem to enjoy their job and work environment.  Jerry tells us that eight college students founded the company five years ago. Currently they employ 600 workers out of almost 400 are full time employees. We are lead into a conference room and PowerPoint slides in Chinese are used to guide the presentation.  We are given further background on the company with the focus on on-line education and the potential of the company. The initial investment into Hujiang.
com was 80,000 RMBs ($12,000 USD) and the market cap today is nearly 2 billion RMB ($318 million USD). The company has had enormous success and they are attributing it to the low logistic costs, high profit margin, high growth and the enormous market that they are still exploring. They charge 5-2000 RMB ($0.80 – $320) per course and in addition much if its revenue comes from advertisement. They currently have 100 million registered users and have provided services to over 200 million users. After the presentation we get a chance to ask questions and thereafter we hand our hosts a gift and take pictures. As we walk out the group discusses the passion and enthusiasm our hosts showed for their company and the enormous potential Hujiang.com has not only in China but also internationally.

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Zuchongzhi

Thereafter, we head downstairs to a company providing server space to other companies.  Kevin Shao, deputy manager of the software park, guides us in to the relatively small area where the servers are stored. He further explains how the servers and the associated services work. As we walk out we pass a few technicians viewing monitors and overseeing the servers.

We are then guided to another building. The walk takes us along the manmade lake that has picnic areas and even places to anchor small boats during the summer season.

Mr. Shao shows us into a large room filled with workstations. However, they are only equipped with a monitor, mouse, keyboard and a small box where flash drives or other devices can be connected for bringing or saving information. There are no computers since this area is utilizing cloud computing. Other
companies can rent space for 50RMB per day/station. This can create great savings for a company since they not only save on the hardware but also on software since this is paid for per usage. The group has many questions and the discussion about security is brought up several times. However, it seems though this might be computing of the future. Companies would also save space and temporary project could be easier to accommodate, creating further savings and efficiencies.

We are having lunch in the cafeteria where the employees of the Software Park are eating their lunch as well. Our group is shown to a corner of the cafeteria where we are served Chinese lunch consisting of chicken soup, rice, sweet and sour chicken, tofu, vegetables, etc.

Our next meeting is with Shanghai Data Solution (SDS). They were founded in 1999 and is owned by the government. They specialize in data communications, information system integration and other services to financial institutions and government departments such as data centers, internet access and network services. They provide internet service to many companies in the soft ware park. 60 % of their customers are from the US. They currently have 200 employees and its data center (IDX) has 17 employees. After a quick meeting we give our host a gift and head out to our last meeting for the day.

ISVision Technologies

Wenbin Zeng, vice president of ISVision Technologies, meets us in a conference room looking out over the software park. This company produces numerous
products related to face recognition technology.

Mr. Zeng tells us that the company incorporated in 1999 and has been in Shanghai since 2001. They have 61 national patents in face recognition. They employ 150 people which of 30% have master degrees or above.

Their products have the technology to match faces to pictures in data bases. This type of face recognition software can be used for security in banks, prisons, government offices etc. But the technology can also be used to find people by matching video, sketches or photos to national data bases. Mr. Zeng proudly shows us how the face recognition software works and tells us that several criminals actually have been found with help of the software. ISVision provides equipment to the government but also private organizations. The technology can scan 700 million faces in one second and if the pictures are of high quality there is more than a 90% match rate. The software can also use sketches and pictures from the internet as a comparison but
the match rate decreases.

After another intensive day of meetings and experiences we were happy to head back to the hotel to prepare for a few more days in China before returning to the US.

IS Vision Technologies Co. LTD Friday Afternoon (Feb 24, 2012)

Cindy Havenhill, CFP | MBA Student

Last ONE!!! This is our very last company and we are all ready for the finale!

We had a few technical difficulties, but the presenters were able to get the show up & running.  You could see the enthusiasm for the company and their products – it was just so evident in the way they spoke about the company – so it made it more exciting to all of us too!

Since its establishment in 2001, Shanghai Isvision Technologies Co., Ltd., the former Chengdu Isvision Network Technology Co. Ltd. Incorporated in July, 1999, has been a high-tech enterprise specialized in research, application and marketing of face recognition technology, with registered capital of RMB 40
million Yuan. In April 2000, Isvision signed a strategic cooperation agreement with the Institute of Computing Technology under Chinese Academy of Sciences to jointly found ICT of CAS-IsVision Face Recognition Laboratory to make further study on the core technologies of face recognition. The Laboratory has now become a well known research organization, holding leading edges in domestic market and advanced edges in the international market.

Thursday, February 23, 2012

Morning: LEADBANK Private Wealth Management

Afternoon: Gaodong Town Government

LEADBank Wealth Management

HC Investment & Development

Cindy Havenhill, CFP® | MBA Student

Dr Lee and Chong his assistant provided us with some background information on China finance.  China has only 53 trust companies. Most Fortune 500 China companies are nationally owned.

The government has restricted banks from lending. This was interpreted as an effort to ease the perceived real estate bubble.  Trust companies provide interest rates of 10% – 25% compared to bank interest rate of 7%.  A typical mortgage is for 40% of the first house mortgage and 60% for the second house mortgage.  We inquired as to the loan terms compared to what we have in the United States; 30 year fixed, 20 year, 15 year terms. The mortgage length in China is age developed.  The mandatory retirement age for a male is age 60. So a 20 year pole male would have a 40 year mortgage and a 45 year old male would have a 15 year mortgage. Mr. Lee stated that there is no cheap money anymore as they don’t want another 1997. Foreigners cannot buy these trust investments, however a foreigner can own their own primary residence. Private equity just started opening up 6 – 9 months ago.  Private equity is more like an investment company.
The government grants a listing on the stock market. (Guanxi is used). Merger and acquisition activity is NOT common. Only “B” shares can be owned by foreigners. Foreigners can also own private equity. It is estimated that there is $100 billion RMB in Foreign Private Equity. Taxes are collected in both China and USA. Hong Kong is the preferred location of Multinationals Head Quarters because of taxation. Hong Kong makes it easy to do business.

The private equity is for accredited investors only and $1 million RMB is the minimum per unit.  As the investment increases, the interest rate increases. We asked about the rates and were told that 10% is a low rate of return and 24% is a high rate of return.  There are commissions of 3% and 3% trust commission. This is added to the borrowers cost, so if an investors is receiving 14% the borrower is paying 20%.

The 70 year lease for the land with the government starts when the developer gets the land and the lease stays with the land.  There is a
big difference between East China and West China – think of it like “big city” compared to “very rural country”.  The low class is the biggest population in China and they make less than $1,000 RMB per month.  The middle class would make $2,000 – $3,000 RMB a month and the upper class (about 5% of the population) makes $10,000 – $20,000 RMB a month.  In general there is no tax on income, there is a tax on turnover (we call it revenue).  It has been estimated that 25% of China’s population has more

than $100,000,000 RMB savings.

We visited two of Dr. Lee’s developments; the first was for middle class and the second for the wealthy.  DuShi Free Garden is a planned community in Shanghai located 10 minutes from the subway and bus transportation. In 2009,
350 units sold out in 25 minutes at a sales price of $1 million to $1.5 million RMB. The units range in size from 61m² to 132m². There are 5 models, the most basic 1 bedroom, 1 bathroom and the largest floor plan with 3 bedrooms and 2 bathrooms.  In March of 2010, 230 units sold out in 2 ½ months at prices of $10,000 RMB to $14,000 RMB per M² (US $ at 6.3 conversion would be $1,587 to $2,222 m² )

The development consists of 11 multilayer small high rise buildings with 762 households (units). There is green area (40%) and each unit has 1 parking space (underground). There is 5,000 m² commercial real estate surrounding the area such as grocery store, medical center, retirement village – all built by the developer, but run by the government.

This development was started in 2008, when Dr. Lee thought the land was very cheap to buy. They spent $80 million RMB for 66,000 m² of land and with construction costs they have $360 million total cost for this project/development – but because money makes money, they say it only really cost them $160 million RMB. $1.2 billion RMB is their total revenue.

Chinese have affection for land and houses – this was repeated many times during our visit.  Some interesting factoids: The sales center opened 3 months before the development started construction. 200 people were in the queue at 6:00am, at 8:00am 600 people. In 3 months, they had accumulated 1,000 people demand! The price was increased by 5%, but new price lists were not printed. The units were competitively priced to downtown. If the owners in the 1^st tranche were to sell now, they would realize a 100% profit.  Real Estate is a main industry of this nation and represents the largest part of
GDP.

Now for Star River – the development for the rich people – the quality of the development is high and so is the price.  The smallest unit is 250m² (2,690 sf) and the largest unit is 497m² (5,348 sf).  A sales record of 6 billion (about 1 billion US $) RMB was sold in one day. We were allowed to tour the smallest unit and the largest unit. One word can be used for both D-E-L-U-X-E!!! No pictures were allowed, so I will describe as best I can – think of the most luxurious 5 star hotel you have been in – now multiply that by 3 – that would be the look. Everything has a place, and a place for everything – in super high end fashion style. The surfaces are all natural surfaces, marble, travertine, porcelain, mahogany, et al. The windows were the quality of Andersen/Sierra Pacific. The kitchens – yes – that is a plural, two kitchens; one Chinese (traditional) and one western.  To say that the Chinese kitchen was traditional is a huge understatement – think high
end art deco smattered with lots of functionality. The colors and contrasts were breath taking as were the textures. Can we talk appliances? Please! It really doesn’t get any better than these kitchen appliances – a smart wall filled with whatever it is you need to chill, grill, warm, bake, refrigerate, or make ice and of course your wine is the perfect temperature for serving at all times.  The largest model had a flat panel Sharp Aquos TV in most rooms (too western for my taste).  The upstairs had an open living space to the left of the spiral stair case and flowing to the right of the staircase after the open hallway is a master suite – not just a master bedroom mind you – a master suite – several people could live in just this suite! Bathrooms, living room, beds……they just kept going.  We did find it very interesting (and none of us asked) about two king size beds in one room – his and hers maybe? Or his, hers, and hers? We made up our own story.  This home was entered through a
private elevator – what else?  Patios – yes – windows – a lot of them, made for an airy, and yet still classy 6,000 square feet of heaven on earth. Each of these units has 2 parking spaces all underground.  The current price is 30,000 – 50,000 RMB per m².  Dr. Lee’s group feels that the prices will keep increasing.  There will be a high end temporary residential building within this development.  The current monthly fee of 30,000 RMB and an HOA fee of 450 RMB per m².  The local government will build and rebuild roads to accommodate growth and to maintain the quality of the development.  This development consists of buildings 1 – 15 but no number 4 or number 14. (The number 4 in Chinese is associated with death).  An interesting issue is that these units are sold empty – so the price just reflects the building. The buyer will still need to furnish with cabinets, appliances, bathroom fixtures. Similarly to the US real estate market – the secondary market will of
course include the cabinets, fixtures, appliances, etc….

China is a place of activities and investing opportunities. Young industries like real estate and finance have more options.

There are 200 national banks in China and 130 insurance companies. 220 investment banks and 53 trust companies, but the government is opening the market slowly. Commercial banks are starting but must be 20% nationally owned so government is 20% partner. There is a limit of 5 banks in every province and there are other restrictions in urban areas.  The capital requirement is $50 million RMB and the fixed regulated minimum spread is currently 4%.  Government gives you minimum, market will give you maximum.

Dr Lee’s passion and focus shows just how entrepreneurial Chinese people can be.

Gaodong Town Government

Lawrence King, MBA

Pudong New Area

Shanghai China

Today the weather was cold and blustery. After breakfast at the hotel, we loaded into the van for
another busy day. In the morning we visited DuShi Free Garden, a mid-level priced real estate development funded by Shanghai Haocheng Investment a & Development Co. Ltd. We then moved on to the swanky and very high-end Chateau Star River development.

After our tours and discussion, we ate a sumptuous Chinese lunch hosted by a banker, Dr. Li Baoping, Deputy General Manager of the Capital Operation Department for Zhuoda Real Estate Group Company, Ltd. The most exotic dish on the lunch table was a thin Abalone soup. But my (and Stan’s) favorite dish was sliced, dry pepper spicy beef. Not sure if it was roast beef or tongue, but it was delicious nonetheless! Stan and I were happy that the pepper apparently scared off others from trying it. More for us!

A bit narcoleptic from over-stuffing ourselves with the delicious food, we dozed/drove over to our last visit of the day, Gaodong Government Center in the Pudong New Area of Shanghai. The building we entered was modern and
efficient, if a bit Spartan. We were seated in the conference room of the Business Invitation Service Center and greeted by our host, Zhou Jian Guang. This is the room where prospective relocating businesses come to listen to the Town Government sales pitch on why they should choose Gaodong Industrial Business Park for their new home, negotiate terms and hammer out the best deal they can.

Speaking from written prepared presentation, we learn from Mr. Zhou (via our friend and translator Yifan Tang) that the Gaodong Industrial Park encompasses an area of 36 square kilometers (~4 sq. miles) and that it is situated near water to facilitate containerization of goods and ship transport. The town is located about 30 minutes from downtown Shanghai and nearby is a medical center, schools and hospital.

The current population is about 100,000 people, with a median annual income of 50,000 RMB (~ US $8,000). The Town Government expects that the population will grow to between 200-300,000 within the next
five years. Mr. Zhou points out that there is plenty of migrant labor available. Sales tax is on revenue and the aggregate tax rate is approximately 20-30% of revenue. But this might be negotiable, Mr. Zhou adds.

Dr. Basu asks Mr. Zhou about incentives for new companies that relocate into Gaodong Park. Government pays for the education of students up to the High School level. Housing for workers is subsidized to an “affordable” price by the government.

When pressed for other incentives by Dr. Basu, Mr. Zhou concedes that incentives include land and tax holiday, a 50% reduction in the local tax, and a 5% credit towards rent.

After the presentation and Q&A session, we clamber back aboard our van, with Mr. Zhou accompanying us for a tour of the Industrial Park. The roads are wide, neat and clean. The streets are mostly perpendicular and well laid out into a grid pattern. The Industrial Park is densely packed with a variety of international companies, many with familiar names. The
park is home to a multitude of clean-tech manufacturing companies including Siemens Electronics, an unnamed Photovoltaic Solar Cell Company and Lacoste Clothing.

After finishing the tour, we return to the town government building to drop-off Mr. Zhou. It is late afternoon and schools are getting out, allowing us to survey the uniformed students, carrying backpacks much like our students do at home. Somebody offers that they attend school Monday through Friday but start earlier (~7:30) and stay later (~3:30) than US students.

We present Mr. Zhou with our token gifts and he seems to appreciate these very much. Besides the smiles, he engages in speaking some English with several of us. He had not previously spoken English using only a translator in his presentation.

It’s been another long and action packed day. Several in our group asked to be dropped off in the garment district on the way back to the Hotel so they may get measured for new suits. That being accomplished we return to the
hotel just as dusk is setting in.

Wednesday, February 22, 2012

Morning: Jiangsu Ruigang Precision Mechanism

Afternoon: Jiangsu Shangci Group

Jiangsu Shangci Group

Stephanie Folster  | MBA Candidate

This is an incredible manufacturing company, Mr. Zhong Yuan says it is the largest fishing reels manufacturer in the world. With over 2
million square feet and more than 1,000 employees, working approximately 8 hour shifts, 5 days a week, they are able to produce over 20,000 reels per day.  Although this manufacturer seems to be so much more clean than some of the other places we’ve seen, it is quite obvious that there are no standards like we require in the United States. For example, I remember the smell from the chemicals being used throughout the company was so strong that I had to leave the room because I was getting a headache. Yet, barely any employees were wearing protective masks. I can’t imaging smelling that for an 8 hour shift. I also noticed no one was wearing protective eye glasses while operating a machine. Metal pieces were flying out of the machines and onto the employees operating them. The scraps were everywhere and there were no standard practices taking place to protect the workers.

There were many machines at this facility, each was approximately $80,000 and require to maintain a standard temperature to
produce the variety of sizes of molds they build in house.  Nothing is actually outsourced, everything is made in house, from the molds to the details of the fishing reels. The workers put a lot of hand detail into the reels, this was incredible for me to see because I have rarely been on a machine shop floor. Although the company I work for does manufacturing in house, the products are much bigger than those of Jiangsu.

I was curious as to how the employees get trained and the managers explained there are two ways: 1.) People train each other and their is a lot of cross-departmental training. This way an employee can work on assembling one part of a reel and then after a certain batch is finished, they can move onto another part. 2.) They use SOPs (standard operating processes). Further, packaging is done by hand and workers again change stations as needed to finish the job.

Since I was able to see first hand the impact lean manufacturing and OSHA can have on a business and its workers, I
would recommend future improvements for this company, to include the implementation of lean manufacturing processes. Also standards should be established to protect the employees from the chemical exposure, which could cause long term damage to their health. There should also be safety standards established to prevent major accidents from happening, for example, a small piece of metal flying into someone’s eyeball.

I was completely impress with the generosity of all the people giving us the tour. I was actually a little surprised they let us take pictures, but I was happy they did. To top it off, they let each of us take home a fishing reel. How awesome is that?!? I will never forget this opportunity to see the different manufacturing companies and observe the various business process. It was an exceptional experience, one I will never forget.

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