May

6

Everything You Need to Know About the Market…, from Victor Niederhoffer

May 6, 2009 |

3 Comments so far

1. david higgs on May 5, 2009 10:38 pm

   markets are electronic these days, get you and electric razor!… best to you and the personage…

2. Terry Sullivan on May 6, 2009 8:29 am

   I just tried one of those battery operated double edge razors for the first time. They are great!

3. douglas roberts dimick on May 7, 2009 12:25 pm

   Everything You Need to Know About The Market a la Chinese Communism

   As I begin the book, I conclude with a China diary entry — one made some 2.5 years into my three years here.

   How about how the razor blades bag gets there, V…?

   C. Final Observation: The Razor Blade Economy

   Returning to my China diary, here I close with a citation of Chinese economics as I have repeatedly experienced during the past two years.

   Prefacing this text with my story of the hotel valet at Beijing Airport (the old, pre-Olympic facility), I now relate this final observation to portray a practical simulation typifying the challenges presented to China’s state planners and corporate leadership. Although my diary entry here is more entertaining than instructive, it illustrates the underlying social and economic tensions between economic efficiencies and social welfare as measured by job creation and enhancement.

   In light of India, China increasingly realizes that it must now develop higher technology market segmentation by balancing partial dependence upon foreign enterprise participation with producer and supplier growth, so combined with the requirements upon Chinese firms for increasing competitiveness in foreign markets.

   Herein is the paradox for state planners: “jobs and technology” albeit “jobs or technology.” Notably, there is an intensifying challenge of China’s economic and corporate leadership to transfer (if not convert) significant allocations of current labor, education, production, and supply capacities into higher technology related outputs.

   Case in point… The exercise of purchasing razor blades here in China appears indicative of the “China Syndrome” faced by state planners and corporate leaders…

   I have participated in this rather inefficient, labor duplicitous exercise both in Wuhan – where it may be said that old China clashes on a daily basis with new China – [as well in Beijing, Shanghai, Yantai] and in Shenzhen, which is boasted by government officials to be China’s model city, whose streets were built by Chinese hands with bricks untouched by foreign interests and concerns.

   Note: one may take issue with that claim, as it appears that much of Shenzhen’s development during the past ten years has been directly or indirectly financed by foreign investment and international commerce.

   Regardless, the issue at hand is a process that appears endemic, reflected throughout Chinese economic and social metrics. Why are razor blades sold as a separate transaction, so executed by segregated sales staff, requiring at least two separate points of purchase and sale when tasked with a household shopping list?

   Yes, I go to local grocery stores, usually presenting a retail maze, whose architecture and floor-plan designs appear more predatory than consumer friendly. For example, escalators are often installed or only operate for customers entering the store, easing entry, while egress and exiting requires walking, stepping, even at times comparable to hiking or climbing out of a store.

   Sometimes store floor plan access and egress, as another example, requires customers to go up one or two floors to exit only by then descending back down. The idea here, of course, is analogous to casino architecture, whereby the “player” (or here the “shopper”) is kept on the premises for as long as possible to encourage impulsive spending.

   So upon finding the segregated display of razor blades available for purchase, the next step is interaction… being monitored by salegirls, who immediately present themselves upon my approaching the razor display.

   I note here that razor blades are often secured behind a locked, glass case, as you will see sometimes with pricy designer jewelry at your local shopping malls. I have yet to determine whether this store policy is based on razor blades being considered possible weapons or merely some form of marketing ploy, perhaps inferring that razor blades are of special social-economic value – or perhaps easy to steal.

   Right, back to my purchase… There I am, being watched carefully, usually by a teenage girl, whom I presume offers no expertise as to what is best for men who desire to shave.

   I have, on more than on one occasion, identified pricing discrepancies between different brands. As my Chinese is basic vocabulary and listening skills, my attempted communication of price comparisons is usually met with either a bank stare, reserved nodding of the head, or total ignoring of my smile-laden attempts to take and hold the floor of debate on matters of razor blade pricing metrics.

   Eventually, with a selection made, the salesgirl dutifully marks my choice on a paper pad - appears (in Chinese language) to be an inventory tracking list. She also prepares what appears to be a sales-slip.

   The salesgirl then does a nationalistic-sort-of-wave of her hand and arm, so directing me to a cashier – not a general item cashier, mind you, but a special purchase cashier. Depending on the store, I notice that other items so designated for segregated point of sale transactions may include alcohol, cigarettes, cosmetics, and foreign food stuff.

   From a store security standpoint, it is important to note here that I am not allowed to take my selected razor blades with me. They stay in safe keeping with the salesgirl.

   So, upon arrival at the special purchase register, I stand in line. When it is my turn, I hand my choice of payment (usually cash) to the cash register girl (always a girl).

   Sorry, but I stop here to note the currency issue…

   Be it in Shanghai, Shenzhen, Guangzhou, Hubei, Wuhan, Hunan, Beijing, and wherever else that I have been in China, albeit with the exception of Hong Kong with Hong Kong Dollars, when I present 20-50-100 RMB denominated notes, (nine times out ten) these instances result in a currency inspection, either manually or by electronic scanner.

   After three years here, I have developed two different responses to the sensation of standing in front of a cashier while he or she inspects my currency as so presented for payment. Sometimes, I simply accept my change and proceed with concluding the transaction. However, on some occasions, when in that mood, I have inspected notes retuned as change.

   I do this in a humorous fashion, more curious of the reaction from salespeople than about the authenticity of the currency notes. Besides, I don’t know the difference between real and phony anyway. I am a foreigner who can speak a little (or Chinese pronounced “shao”) Chinese language.

   I realize that this counterfeit currency issue is common in other emerging and developing countries. Regardless, given that the world is allegedly entering a century where China shall be significantly impacting political and social-economic dynamics of the globalization of humanity, issues related to currency integrity and counterfeiting might be moved up toward the top of the list for central government policy directives and banking advancements.

   In any case, my money has been accepted, change is presented as so warranted, three different slips have been printed, handwritten, and or stamped, and I am again directed back to my faithful salesgirl. She awaits my presentment of documentary evidence, so certifying that I have paid valuable consideration, whereby then the transaction may be completed and goods so transferred.

   Another anomaly here is presented, perhaps quite contrary to Chinese commerce, normatively speaking… There is no negotiation directly or indirectly indicated for the acquisition of razor blades in China.

   Right, the price is fixed and so demanded by whomever is in charge of supply and pricing policies for razor blade distribution and sales. I am quite certain of this phenomenon (i.e. an item not negotiable in a country whose motto is touted by its street entrepreneurs as being “anything can be purchased in China; it is only a questions of price”).

   Naturally, each time (about once every one or two months) that I buy razor blades, I rhetorically ponder to myself about some aspect of the why’s and how’s of razor blade distribution and sales in China.

   In any case, I have returned to the razor blade display, presented my three slips of paper evidencing payment, of which two slips are returned to me along with my razor blades. Done deal.

   Wait: Do I want a bag for my razor blades?

   Well, because my purchase is a special one, I am “given” a bag. Still, somewhere, somehow during my time here, since the CPI in China has become a topic of daily conversation and speculation, I have noticed that Chinese bean counters (at least at the grocery stores that I frequent) have identified a new revenue enhancement strategy.

   Right, you guessed it… If a customer wants a bag for the groceries purchased, then that person will have to pay usually 2 jow (or2/10 of 1 RMB) for each bag so required.

   Wow. That is “The Art of Conversion” in true horizontally and vertically integrated form – not only identifying a need, providing fulfillment, and maximizing a seller-opportunistic system for revenue enhancement for valuation models, but also bagging the customer… literally.

   Here in China, as we observe in similar ways within America, balancing foreign trade with domestic economic development issues is murkier in the guise of provincial or local economics, both in terms of government revenues and project development allocations among government and corporate leaders. For example, some of those razor blades offered for selective purchasing are foreign brands.

   Thus, emphasis on my razor blade transaction is not about efficiency or quality of the product; it is job creation.

   Yet, at some point, this type of structural inefficiency at national, aggregated levels impedes training and resource allocations, for example, with developing higher technology sector applications and channels.

   WTO members, including the US, increasing clamor for China to open its markets to foreign competition. Clearly, at least in terms of economic development and social harmony, state planners see features and benefits from a continued trend of openness and reform policies.

   In varying degrees at numerous times in American history, similar challenges have been presented to leaders at federal, state, and local levels of government and among a broad range of industrial sectors within the US business community. Although China boasts 5,000 years of cultural history, given its 30 year infancy with market economics, state planners and corporate leaders may learn important economic development lessons by studying America’s past century of pre- to post- industrialization periods of development.

   dr