April, 2006

Research Perspective and Comments & Analysis

Looking Beyond The Wall

Standing on the Great Wall of China 50 miles outside Beijing left me with a sense of awe. The world’s only man-made structure visible from space rises dramatically above the plains and continues west for 3,000+ miles across mountains and valleys. Under construction for more than 2,000 years and intended to keep out the Mongols to the north, the Great Wall is today more of an attraction than a deterrent. Tourists swarm, vendors peddle, cameras whirr and eyes widen.

When the 2008 Olympic Games in Beijing conclude, few people with a TV will have not seen some part of the Great Wall. But beyond the awe and majesty, how will they think of it? As a triumph of architecture, massive use of forced labor, genius of construction technology, failed attempt to keep the world out?

What does the Great Wall have to do with research perspectives? Our produce business is completely global; we need to understand what makes potential consumers buy and where new sources are emerging. Because the highest walls in our business today are those we build in our minds.

I was in Shanghai with PMA Chairman of the Board Janet Erickson to attend a meeting of our International Council, a standing group drawn from our membership worldwide. It drew retailers from Asia, Europe, Canada and South Africa and suppliers from Argentina, Australia, Mexico, New Zealand and the United States, among others. A focus of our meeting was the draft of a White Paper on China created by the research experts at Rabobank, the world’s leading agricultural lending bank.

Leading our conversation was Patrick Vizzone, the Australian-born head of the bank’s Strategic Advisory and Research food group based in Hong Kong. Our plan was for PMA’s council to dissect the draft and provide a reality check on the status and potential of China as both an importer and exporter of fruits and vegetables. PMA and Rabobank had already agreed to publish the finished product of this collaborative process later this spring. Patrick will discuss the findings in a special session during Fresh Summit in San Diego in October.

This summer, I’ll dig into the completed White Paper with you. We know there is great interest in the impact China has for the global produce industry. When you have a population of 1.3 billion hungry for better food and you already grow, for example, almost half the world’s apples, someone in our industry, somehow, sometime is going to feel the effect — and it’ll be in more than just apples.

I went to China for the first time not knowing what to expect. I’d recently read Thomas Friedman’s magnificent The World is Flat: A Brief History of the Twenty-first Century. Friedman outlined how countries like China and India are benefiting from the global connectivity brought on by new technology, economic growth and political change. On the plane, I also read James McGregor’s new One Billion Customers: Lessons from the Front Lines of Doing Business in China, which digs deeper into the guts of what makes Chinese business run. On arrival in China, I read the latest reports on GDP growth in 2005: officially at 9.9 percent after 9.5 percent in 2004.

China is a collection of many contrasts. It is labor rich and resource poor. Some people see great opportunity for produce shipments into a country with such pent-up buying power. Others see the abundance and low cost of labor as a harbinger of Chinese produce exports biting into their share of the global market.

Want to see complete supply chain integration? Visit City Shop, a five-store high-end retailer in Shanghai whose produce selection, mostly organic, comes directly from its own greenhouse farm called City Farm on the outskirts of the city. PMA’s group visited both ends of this “supply chain” and marveled at the freshness of the products.

At the other end of the spectrum, wouldn’t you salivate if, like a Wal-Mart Supercenter we visited in Shanghai, you had 15,000 shoppers passing through in one day? What about a fleet of your own buses bringing shoppers to and from the store? Don’t forget the swarms who descended on the pear display when its price was suddenly dropped more than 50 percent, a sight that would bring joy to shippers everywhere.

In Beijing, I ate lunch at Baijia Dazhaimen where two waitresses in Ming Dynasty costumes took our order directly on handheld computers that relayed the information wirelessly to the kitchen. Old World, meet the New World.

Venture into the heart of what was once called the Forbidden City after passing under the picture of Chairman Mao. In an inner sanctum populated in centuries past only by the emperor, his family and their eunuchs, you’ll find…a Starbucks.

Then there was the bowl of Sunkist oranges placed in front of the massive white Buddha in Shanghai’s Jade Buddha Temple by the resident monks. Imagine the brand visibility one gets in a holy shrine where thousands come to kneel down daily, reflect and leave their coin donations.

The Chinese seem intent on creating in two decades the growth that bypassed them in the 200 years prior to the 1990s. Once a trading giant, technologically ahead of the West, they want to return to that glory. For them, the Great Wall is a symbol of past accomplishment, not a barrier to growth.

I tasted the powerful flavor of a country in which lessons are learned quickly and resulting action happens as if by reflex. The willingness to absorb ideas and the work ethic to implement them is incredible. You want a product in a different package that shape and size? No problem, here it is.

Our 26-year-old Chinese guide from Beijing e-mailed me her view of Shanghai. “It is a city without memory: they can accept a new thing in 10 minutes and forget it in another 10.” Perhaps that captures the essence of the new China: looking ahead, not tied to the past, voracious, adapting, wanting to show the world that economic power can be restored if enough people are willing to really work for it. What an appetite, what a lesson.

Let The Research Begin

As an American, I am not sure if I should celebrate China…or fear her. In a sense I find a great affinity with the Chinese. The sense of a dynamic and entrepreneurial society you feel in China is very akin to our own ways. I don’t think it is an accident that a prototypically American organization like Wal-Mart struggles in Germany but thrives in China.

And yet…as China grows in economic might, we cannot be indifferent to the uses to which that wealth might be put. Secretary of State Condoleeza Rice was in Australia recently and she pointed to China’s massive military build up and asked what it was for.

Bryan’s visit is actually the beginning of all good research. It is the kind of informal thought process that is designed to raise questions. The questions that later are answered through more formal research. And, believe it or not, the most important part of research is the questions, not the answers. It has to be so, because the answers you get depend on the questions you ask.

Ask if you think John Smith should be reelected and you get one answer; ask which of the two candidates up for election, John Smith or Jane Jones, should be elected and you may get a totally different answer.

In large part, this is the argument for diversity in organizations, including trade associations. How do you know the right questions if you don’t have diverse points of view?

In general, qualitative research doesn’t get its due. Organizations like to do quantitative research — partly because it is comparatively easy to get results, partly because it lends itself to publicity. You do a survey, you get a computer to tabulate, and you can send out a press release announcing that 97 percent of the population enjoys whatever fruit you are looking to promote.

But it is wrong very often. Mostly because the questions asked were not designed carefully enough, and they were not designed carefully enough because not enough qualitative work was done first.

Qualitative work is expensive. It requires top people to analyze and reflect on its meaning and importance. It produces no publicity in the form of attention-grabbing statistics. But it is essential. The meaning of words is a crucial component of research. Bryan asks what people will think of when they think of the Great Wall of China, what it will mean to them.

The same type of question needs to be asked every time we ask consumers a survey question. Asking consumers if they will pay more for an “Idaho Potato” and thinking their response has meaning presumes that we are talking about the same thing. If the researcher is asking, “Would you pay more for potatoes grown in the State of Idaho?” and the consumer is hearing, “Would you pay more for long white baking potatoes?” — the research results won’t mean what the researcher assumes.

The globalization of the produce trade practically compels more research because, at its core, research is simply a way of learning about things we don’t know. And the bigger the subject, the more we don’t know.

Many a business mistake is made because people act on hunches or suppositions. But just as many mistakes are made because research is done and it is too one-dimensional. Too often people assume that a telephone or mail survey and research are synonyms. But they are not. A survey is but one part, and often not the most important part, of a research project.

Reading the Rabobank Report that Bryan refers to is going to be very interesting. I find that financial institutions often do very good work when they do research not related to a stock they want to promote. There is something about the fact that someone will be putting money on the line as a result of the findings that concentrates the mind.

All of us need, though, to do our own informal research. It is vitally important to know the impact China will have on the produce industry and, doubtless, if you can figure it out, that creates opportunities. But taking advantage of those opportunities is difficult because it begs the question of what your own organization’s competencies are. That is why change is always heartbreaking. It is not just the lazy and incompetent who suffer; many a successful player can see what is coming but has no special competency to capitalize on it.

For trade associations, the internationalization of the industry poses real problems. Sure a grower in Mexico, who sees the United States as its only real market, may join with full force. But a grower in China, for whom the United States is just another market and probably a secondary one to many other countries, is unlikely to be a fully committed member.

And to the extent that trade associations take positions on issues such as immigration, one wonders what the notion of membership means when a trade association, purporting to have true international membership, takes positions opposite to the interests of the very international members the association is looking to woo.

As an entrepreneur — and we entrepreneurs are constitutionally optimistic — I think Bryan’s walk through Shanghai and his stroll on the Great Wall is a step in resolving these issues. One thing is certain; it’s the beginning of a research project that will consume generations.