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Asia Business Conference shows challenge, potential of vast market

By Raksha Varma

5/1/2004 -

Among the luminaries bringing their leadership insights to the inaugural Kellogg School Asian Business Conference on April 24 were Cassian Cheung, president of Wal-Mart China, and David Nissen, president and CEO of General Electric Consumer Finance.

Each spoke about the booming Asian marketplace, addressing some 300 conference attendees, including many Kellogg School faculty and students who packed the Tribune Auditorium in the James L. Allen Center on the Evanston campus.

"We are witnessing tremendous opportunity in Asia,’” said Cheung, a 1978 graduate of the Kellogg School.

Cheung spoke about Wal-Mart China’s increasing importance to the marketplace there.

"We take care of villages — not just people,” said Cheung. "Face-to-face contact with the customer is critical.”

More than 2,000 Wal-Mart associates, who are local Chinese employed in 17 cities throughout the country, service about 3 million people per week, he said.

Cheung, who opened the country’s first Wal-Mart in 1996, oversees 35 stores today, including 30 superstores.

“Superstores are the most popular,” Cheung said. “Unlike the American consumer, the Chinese consumer goes to Wal-Mart primarily for food.”

Food accounts for 60 to 70 percent of sales, he noted. Similar to a farmer’s market, a significant portion within the Wal-Mart superstore caters to the hundreds of shoppers who purchase fresh food, including meat and fish, for daily consumption.

“Wal-Mart China has met with tremendous success,” Cheung said. “Our partnership with suppliers and in-store efforts add to that.”

Strong vendor partnerships, which Cheung referred to, are built on market-appropriate technology, supply-chain management, centralized distribution and efficient e-commerce.

Suppliers contract with regional brands, instead of large, national brands. Selling regional brands helps Wal-Mart China retain a 2 percent monthly price drop, while increasing merchandise value, Cheung explained.

Clothes are modeled by local Chinese, as part of Wal-Mart’s in-store effort — what Cheung refers to as “retailtainment.” To illustrate the concept, Cheung showed conference attendees a short film.

“Retailtainment is critical to us,” Cheung said. “People come to our stores for the experience.”

Retailtainment includes performances from local dance troupes and traditional Chinese entertainment. Efforts to feature performers adds to Wal-Mart’s relationship with the community, Cheung noted.

“Since our relationship with the community is strong, I tend to worry about other matters,” Cheung said. “Are training and recruitment up to speed? Are government relations acceptable?”

Business ventures in Asia are closely linked to government relations. Executive roundtable speakers addressed this issue and others after Cheung’s presentation concluded.

“Government relations has an impact on the banking sector in China, the root of most of its problems,” said Dr. Steven Dunaway, senior adviser of the International Monetary Fund, Asia and Pacific Department.

Although China has accumulated a huge amount of savings, most Chinese banks do not lend appropriately, partner with political authorities and risk inversion. A large-scale banking reform — slashing ceilings on lending rates and generating advancements in risk management — is needed, Dunaway said.

Dr. Ajva Taulananda, also on the panel, spoke about China’s poor income distribution. “Although China has an abundant labor supply, a wide disparity of incomes exists,” said Taulananda, chairman of the Thai Chamber of Commerce and the Board of Trade of Thailand.

China, the sixth largest economy in the world, averaged a nine percent annual gross domestic product rate in the last decade. Exports, which expand at a rate of 17 percent, drive China’s growth and comprise one-third of the country’s GDP, Dunaway said.

“China is the No. 1 destination for foreign investment,” Dunaway said.

The focus on foreign investments in Asia took center stage in the next part of the conference — with panels featuring top managers explaining the positioning of their entrepreneurial ventures in the Asian marketplace.

“I wanted to escape from corporate America,” said Peter Levesque ’99, CEO of V-Logic, an e-fulfillment company in Asia. Along with three others, Levesque discussed the merits of opening a start-up in entrepreneurially friendly countries, such as Singapore, Hong Kong, Malaysia and Thailand.

Entrepreneurs should strike relationships with venture capital firms, the panel said.

“We expect to see a 10-time return over three to five years,” said Wu-Fu Chen, co-founder of Cascade Communications and founder of Acorn Campus and Genesis Campus. “Although that goal isn’t met consistently, we aim for a huge return.”

In addition to foreign investment, the Asian Business Conference focused on global marketing efforts in Asia. A panel, consisting of executives from Johnson & Johnson Consumer Asia Pacific, Dentsu (one of Japan’s top advertising agencies) and Motorola Asia spoke about the consumer’s reaction to branding, marketing and advertising efforts in Asia and the Pacific Rim.

During the conference’s lunch session, General Electric’s David Nissen took the floor to speak about GE’s share of the Asian market.

“GE grew so fast because we created an acquisitions machine,” said Nissen, who holds a bachelor’s degree from Northwestern University.

With assets totaling more than $105 billion, GE provides credit services to retailers, auto dealers and consumers in 38 countries. Acquisitions alone added 18 percent to GE’s 2003 growth rate of 41 percent, he noted.

“Credit and a robust economy go together hand-in-hand,” Nissen said. “Competition is expanding, with more and more people flocking to Asia.” Citibank and HSBC are GE’s main competitors for customers in the Asian marketplace.

“Other companies aren’t a huge threat. We are our own threat,” Nissen said. “What I worry about most is compliance. We hold 5,000 offices in a highly regulated business. If one of our 31,000 employees makes a mistake, it’s on us.”

Nissen spoke about the Asian consumer appetite for the duration of his presentation.

Conference participants expressed their enthusiasm for the learnings presented during the daylong event.

“David Nissen was very helpful to me,” said Jon Sattler of the Hu-Friedy Manufacturing Corporation, one of the world’s largest dental instrument manufacturers. “I got to hear about the latest trends in Asia from speakers here at the conference. I feel more prepared, ahead of the game.”