Mapping Strategy

China's GDP Changes Hands Every Day...

Well, almost. In my business it has become habit to scoop up watershed factoids like this and--along with other bits and pieces--make sense of them in a larger context of multiple future scenarios.

...the Bank for International Settlements in Basel, Switzerland... [tracks] the size of foreign-exchange markets. In April, daily turnover in currency markets rose to $3.2 trillion, the bank said yesterday.

That's more in value than the annual economic output of Germany or China, changing hands in currency markets every day around the world. It's also up 71% from the BIS's last survey in 2004, the largest jump in volume since the institution began conducting its benchmark survey in 1989.

Scenarios for China: Africa and the Classic 2X2

Interesting piece this morning out of South Africa concerning local boy and business celebrity Clem Sunter's recent scenario work with the Chinese Communist Party.

[Sunter] said China's continent of choice is Africa, because it has the resources it needs. "Whereas the West views Africa as a developmental burden, China views it as a commercial opportunity." ... In return for a guaranteed long-term supply of resources, China will provide infrastructure and loans ... [e.g.] assistance to Angola and Nigeria in return for oil...

The second half of China's game, said Sunter, is to turn raw materials into products at half to one tenth of the cost of the West, using cheaper infrastructure and labour. Exports are now 38% of China's GDP. It has $1 trillion of foreign exchange reserves.

...there are four players in the Chinese game. "The West - with its brands and technologies as well as its markets; the developing countries - supplying raw materials; the Communist Party - effectively the management team of China; and Chinese citizens - who are the hardest working, most dedicated people in the world."

He said China is run as a business and its model has been a complete success as judged from the fact that it has moved from the 100th ranked economy to number four in the world in the last 28 years. China's game plan is to be the largest economy in the world by 2040, according to Sunter... "The last time there was an Eastern superpower it was in 1400, so we are rolling back the world 600 years."

Sunter is a practitioner of the 'classic' (or what I sometimes less charitably refer to as 'paleo') method of scenario planning pioneered at Royal Dutch Shell in the 1970s. It centers around a simple matrix of two (and only two) driving forces, each of which range very simply from high to low. Several examples can be found here.

Like the computer architecture of the era in which it was developed (i.e., mainframes), the approach is not without its advantages. Like the computer architectures that succeeded it however (standardized, modular, scalable, ubiquitous, highly democratizing, etc.) scenario thinking has necessarily evolved. I've written about a different, highly modular approach here.

China's "Authoritarian Resilience"

I note an interesting, seemingly oxymoronic concept in this piece: authoritarian resilience.

Beijing has pressed on, doing what Washington believed was impossible: compartmentalizing economic gain from political challenges. This does not mean that the market forces and various liberal instruments trumpeted by the United States should be dismissed or abandoned, but it does mean that as Beijing strengthens the resilience of its authoritarianism, Washington should cease basking in its delusions for inevitable democratic change. [emphasis added]

One key factor in the government's resilience, the author goes on to explain, is the supression of what are called "coordination goods", including:

...political rights, such as free speech and the right to organize and protest; general human rights, such as freedom from arbitrary arrest; and press freedom... the availability of coordination goods affects democratization because they drastically influence the ability of political opponents to coordinate and mobilize but have little impact on the continued economic growth that is crucial for sustaining an authoritarian regime’s legitimacy. [emphasis added]

It's a strange combination, to be sure, and in fact 'robustness' rather than resilience may be a better term for the Chinese government. The former connotes sheer strength and durability; the latter is more characteristic of a system that's able to bounce back seamlessly (or nearly so) from a wide array of unanticipated shocks and challenges. It's a distinction many large organizations should take to heart--and many have.

One could get balled up in a long semantic debate about the two 'r' words, but the point is this: Resilience tends to be associated with exactly the kind of nimble, distributed coordination the Chinese government is working to suppress in politics and promote in economics. (The limits of central planning--in any arena--having been amply proven by historical experiment.)

Durable, top-down organizations may be confused with resilient ones for a time simply because they're strong--and unafraid to wield their accumulated power. Longer-term, I would assert however (and contrary comments are welcome!) that the true resilience of highly distributed systems tends to triumph due to: 1) greater adaptability (they can deform in extreme ways without disintegrating altogether) and 2) the speed with which they can route around 'failure' (to borrow a familiar axiom about the architecture of the Internet).

Exactly how long that battle between resilience and robustness will take to play out in the case of China is anyone's guess. (Long term can mean very long indeed: the co-option of Rome by Christianity took several centuries--easy to see in hindsight but much harder to predict in advance.) The ray of light here may be the philosophical impossibility--at the margins anyway--of differentiating between coordination that is essential to economic growth and that which fuels political/religious change. The Chinese government faces the unenviable and ultimately fruitless task of teasing out the content and intent of each and every expression and drawing a clear line between these natural and overlapping forms of social cooperation.

So long as the tools for coordination in general are the same in business as in politics (laptops, cell phones, networks, fax machines, conversations between individuals, etc.), some political 'stuff' will sneak through--never having been formally identified as such. And so long as the tools are inherently empowering of the individual, their force in changing obedient, collectivist minds into questioning, impatient ones will be inexorable. At least we can hope. Timing is everything.

China's Long-Term Strategy

Short post under a big headline. My attention has been turned East after the Taiwan earthquake and submarine cable cuts. Two good references with perspective on Beijing's recently released Defense White Paper 2006: W$J editorial (subs only) and this morning's China Daily.

Official party line here ("purely defensive in nature")--a reminder that some kinds of transparency look good only because we've become accustomed to having none at all. A report out of the Pentagon that was this thin on data would be greeted by howls of protest.

Most interesting (though hardly new) factoid with a resiliency angle: "China receives about 63% of its oil through the Straits of Malacca -- which are protected by the U.S."

Surprisingly, nothing from Barnett on the paper (yet)--though plenty of other good stuff to chew on at his blog (as always), including the destabilizing effects of religion. (He means that in a positive sense.)
 

Submarine Cable Routes

Following up on communications resiliency in and around the PRC after the Taiwan earthquake (previous posts here and here) an individual from Telegeography (whose maps I'd linked to in those posts) contacted me with links to maps that more accurately portray what I'd been seeking: physical undersea cable routes (page soon to be updated, I'm told), as well as overland routes and services between Asia and Europe via Russia... all of which is only as useful as the knowledge, foresight and budgets of those charged with provisioning resilient capacity for offices in-region.

UPDATE: Speaking of network gridlock in China...

Politics and Networks: Taiwan vs. the PRC

This piece light-heartedly captures a not-so-lighthearted subject: the massive political, military and economic implications of what the Taiwan earthquake has revealed [emphasis added]:

...China’s access to the Internet at large runs through Taiwan… man was that some s***ty planning - and a helluva chip the ROC can play should things get nasty between the two siblings.

PRC: “Um, we’d really like you to come back and be a part of your motherland.”
ROC: “But we believe in a multi-party system...”
PRC: “Fine, have it your way. We’re going to attack you tomorrow.”
ROC: “If you do, you’ll only be able to access Mainland-produced porn.”
PRC: “Please disregard, have a nice day.”

H/T: China Law Blog

Fallacies of Telecom Network Resilience: Lessons From the Taiwan Earthquake

Picking up from my post on the same topic earlier this week, more is becoming clear about Internet and telecoms network failures to and within Asia as a result of Tuesday's major earthquake(s) in and around Taiwan.

• Boats are in place and the fix is already underway, contrary to earlier reports indicating that the cables wouldn't even be touched until after the turn of the new year.


• Laws designed to keep fishing vessels from dragging undersea cables carry fines pitifully out of proportion to the potential damage (roughly a million-to-one). It's not clear why, in a nation (China) not shy about capital-punishment, someone has not lost their head over previous cable cuts (e.g., April 6, 2004).


• The capacity of land-lines from Europe to Asia is tiny in comparison with those from the U.S. to Asia and the U.S. to Europe. This global asymmetry  raises a host of issues ranging from economic development to politics to outsourcing to culture.


• Satellites are expensive and have only limited capacity. The illusion that they offer backup to undersea cables is just that--little better than thinking that carrier pigeons will fill the gap.

With that and other emerging news, it's also becoming clear that lessons learned after 9-11 haven't 'stuck'.

Within the IT-savvy portion of the New York financial community at least (and, I would have imagined, well beyond it) a great deal was learned, publicly documented and put into practice to address the fragility of such networks. The cost was not small, however the there was unanimous agreement that the alternative was worse. The direct and indirect costs of closed markets (four days in the case of 9-11) were understood to be vastly larger--something that many in Asia are rediscovering to their collective chagrin.

The lessons of 9-11 (from a business resilience perspective anyway) are not particular to New York, to the U.S.,  or even to a cause. I'll rephrase and repeat that last bit, because without justification, thinking about business resilience is too often segmented by what went bump in the night rather than what happened as a result of it.

The business resilience lessons of 9-11 apply as well to natural as to man-made disasters; as well to widespread as to 'point' impacts; and as well to protracted as to short-duration events.

The lessons are immutable--essential principles for building and maintaining resilient networks and organizations. Two biggies are:

Understand layer one. Don't assume that a carrier's logical architecture (much less it's marketing architecture) showing a ring, double ring, or even mesh network has anything to do with physical reality. Both 9-11 and the Taiwan earthquake illustrate how economic pressures and crowd dynamics drive networks towards similar if not identical paths-of-least-resistance. (I suspect that carrier assurances in articles like this are not really about physical routes.) This is no more the fault of a particular company or person than is Interstate 80 through the California Sierras, the Golden Gate Bridge across the mouth of San Francisco Bay or the majority of the U.S. financial community on one tiny island (Manhattan). Those were simply the most logical  and least costly places to put those things. So it is under the ocean... 

Get a cross-carrier view. Don't assume that because you have signed up with three carriers that your data (or voice) traffic is moving via three distinct networks, much less three physically dispersed paths. Inter-carrier 'grooming' agreements can spring up without any legal requirement for end customers to be notified.  This is what happened on 9-11. In a similar vein, don't assume that the Internet itself is resilient because it was designed to withstand a nuclear attack. See point one: physical routes matter.

I'll address other laws of business resilience in subsequent posts.

Undiscovered Single Points of Failure: Taiwan Earthquakes and the Illusion of Resilience

Apparently much of Asia, including Australia, has been reduced to minimal Internet bandwidth following the 7.1 magnitude earthquake and powerful aftershocks in Taiwan earlier this week. One article said 40% capacity, noting the outage may persist for days or weeks.

It's a reminder that many networks (and many kinds of networks) that we depend upon we also take for granted. And many of those have single points of failure known to only an elite few. In some cases (e.g., because the cables belong to competing providers) failure points are not known by anyone until it's too late. This is particularly true in Asia, as I've noted before, even among the tech-savvy. My more recent optimism in this regard may have been misplaced.

Forbes characterizes the failure as, "the largest outage of telephone and Internet service in years... demonstrating the vulnerability of the global telecommunications network."

...Up to a dozen fiber-optic cables cross the ocean floor south of Taiwan, carrying traffic between China, Japan, Korea, Southeast Asia, the U.S. and the island itself. Chunghwa Telecom Co., Taiwan's largest phone company, said the quake damaged several of them, and repairs could take two to three weeks. Taiwan lost almost all of its telephone capacity to Japan and mainland China... Later, Chunghwa said connections to the U.S., China and Canada were mostly restored, but 70 percent of the capacity to Japan was still down, along with 90 percent of the capacity to Southeast Asia.

ZDNet says that "two of seven" cables were disrupted, enough to cause service-disrupting congestion on the remaining lines. Based on experience, I find the higher figure Forbes cites more likely, though it's possible that distinctions in terminology account for the difference.

The International Herald Tribune (among others) cites the oft-repeated idea that the Internet is by its very nature resilient:

Technicians in Singapore said that the Internet's built-in protocol was automatically rerouting traffic over alternative routes, either overland through China, west through the Middle East to Europe or even south to Australia.

All true... to a point... the problem being one of layer confusion: if the physical cables don't exist, nothing can be re-routed over them--automatically, manually or otherwise. (Wireless, much less satellite links, do not provide the kind of trunk capacity we're talking about over long distances.)

As this map shows that the IHT's wishful thinking about "overland through China" and "west through the Middle East" are really just ways of expressing grim humor while waiting for the broken undersea cables to be repaired. Last I checked, there were some really big mountains and corrupt Islamic, authoritarian and 'former' communist governments in the way. This map, showing China and vicinity makes this clear. This one shows only Alcatel submarine routes but nonetheless shows what's true of most other providers: most roads go near or through Taiwan. This one by China Telecom confirms the tiny capacity running west over land.

Could this recognition of a geographic reality (i.e., Taiwan as cross-roads on which the mainland is dependent) cause the Chinese to see with greater acuity their dependence on Taiwan... and act on it in new ways?

UPDATE: The W$J this morning confirms the criticality of the sea space around Taiwan:

While the clusters of glass fibers are enclosed in protective material, they remain vulnerable to undersea earthquakes, fishing trawlers and ship anchors. There are also many choke points around the globe, including the vicinity of Tuesday's earthquake, where a number of key cables converge... "It's unprecedented that all seven cable systems suffered damage at the same time," said Au Man-ho, director-general of the [Hong Kong] Office of the Telecommunications Authority.. [emphasis added]

Unprecedented stuff happens all the time. This whole incident is architecturally and organizationally reminiscent of what happened to communications on 9-11, including its effects across a much wider region. I.e., a common single point of failure among several trunk networks previously imagined to have been geographically distributed was discovered only in crisis.

Then there's this, also in the W$J:

...four repair ships with crews will arrive in the affected area on Jan. 2 to begin repair work on four of the damaged lines.

That's five days from now. The location is less than 100 miles off the coast. I can only surmise that the reason for the delays is one that both plagues and enables business resilience efforts (but which is seldom taken into account), namely: people. Mustering a crew to do the repairs (or perhaps mustering the factories to produce the materials needed to do the repairs) is no easy task over the Christmas/New Year's break. When things break, it's seldom at the most opportune time.

Whither China?

Wide-ranging, informative article on Mao's legacy, speculating on a range of futures for China.

Every society changes from one day to the next. But the economic and social transformation in China, especially since the beginning of the reform era in December 1978, has been particularly startling. Mao regimented the Chinese people, oppressed them, clothed them in totalitarian garb, and denied them their individuality. Today, they may not be free, but they are assertive, dynamic, and sassy. A mall-shopping, Internet-connected, trend-crazy people, they are remaking their country at breakneck speed. Deprived for decades, they do not only want more, they want everything.

Change of this sort is inherently destabilizing, especially in a one-party state. Social unrest, writes Samuel Huntington, becomes especially dangerous when political institutions fail to keep up with the forces unleashed by economic change. That is the dilemma of the Chinese Communist party, which, even as it has sponsored uninterrupted economic progress, has itself changed remarkably little from Mao’s days, and still stands in the way of meaningful political reformation.

As Tocqueville observed, “steadily increasing prosperity” does not tranquilize citizens; on the contrary, it promotes “a spirit of unrest.” [emphasis added]

... It would be difficult to underestimate the role played by wireless communications and the Internet in this phenomenon. Societies change—or reach a “tipping point,” to use the contemporary term—when enough people begin to think simultaneously in a new way. These days, Chinese thoughts and emotions travel through optical fiber at the speed of light—there are 123 million “netizens” in China, and 34 million of them are bloggers—and the Chinese are holding nationwide conversations for the first time in their history. Ideas—like, for instance, the idea of representative government—start out small and spread rapidly via countless chatrooms and online forums...

...so far, China has been more successful than any other country in regulating its Internet community; but this is a battle in which it will never be able to claim final victory... Today, the regime survives because no single cause has united the Chinese people and impelled them to march en masse to Tiananmen Square.

Counterfeiting An Entire Company

Anyone who's ever walked down the street in Manhattan for more than five minutes knows about brand counterfeiting in watches, handbags, CDs and the like. Now here's something much bigger and more insidious that large organizations in any consumer-touching business may need to put on their list of difficult-to-fix strategic threats they never imagined they'd have to think about:

After two years and thousands of hours of investigation in conjunction with law enforcement agencies in China, Taiwan and Japan, [NEC] said it had uncovered something far more ambitious than clandestine workshops turning out inferior copies of NEC products.

The pirates were faking the entire company.

Evidence seized in raids on 18 factories and warehouses in China and Taiwan over the past year showed that the counterfeiters had set up what amounted to a parallel NEC brand with links to a network of more than 50 electronics factories in China, Hong Kong and Taiwan.

In the name of NEC, the pirates copied NEC products and went as far as developing their own range of consumer electronic products - everything from home entertainment centres to MP3 players.

They also co-ordinated manufacturing and distribution, collecting all the proceeds. The Japanese company even received complaints about products which were of generally good quality that they did not make or provide with warranties. [emphasis added]