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Bubble In China?

September 12th, 2008 · 2 Comments

Over the Labor Day Weekend, I said "good bye" to a good friend, who was leaving the Unites States to work in China. In the past couple of years, several of my friends have left their cushy job in the States to work in China.The most common jobs for these US educated folks are venture capital, private equity, investment banking, management consulting, and high tech companies with substantial operation in China such as Microsoft.

Is China the promise land for your next career move? Watching my friends going back to China, it reminded me of the late 1990’s when dotcom bubble was at its height. At that time, I was working for a company in downtown SF. I remembered my buddy told me "you should join a start-up in the valley ASAP. That’s where the action is! you’re wasting your time in the city". San Francisco is less than 60 miles from the Silicon Valley. But, at that time, the "valley" was considered the epicenter for dotcoms.

I learn several lessons from surviving the the dotcom bubble that are applicable to the current "china bubble".

First, A very small percentage of people got rich from bubble. I graduated from the Computer Science department of a top university in the bay area when the bubble just got started. My friends and classmates were all getting really good offers from large companies and dotcoms. But, today, although all of them are doing well, the number of millionaires among them are still very small. Luck plays a role. One person I knew joined a company called Geocities as a web developer. He was not a computer science grad and only knew HTML and a little bit scripting. Geocities was soon sold to Yahoo! and my friend made quite a fortune. Becoming rich in the valley has a lot to do with being at the right place at the right time.

Second, Bubble will eventually burst. Make sure you’re learning something while you participate in the bubble. I worked at two start-ups, and neither of them had big success. However, both companies had interesting technologies, and were trying to create useful applications to solve real business problems. After the bubble burst, as I advanced in my career, I actually worked on second-generation technology/application that realized the original visions of the products I worked on in the start-ups. If you’re going to participate in a bubble, make sure you will learn new things and solve real problems. Even if your "bubble adventure" doesn’t work out, you still learn valuable things to carry over to your next job or venture.

Third, it’s painful when bubble bursts. I knew smart and driven people who were out of job for extended period of time, who had to move out of bay area due to high cost of living, who transitioned to completely different careers, etc. If you’re thinking about working in China, I think you should approach your decision with caution.

Just like the dotcom bubble, there are clearly value being created by the "china bubble". China is having an amazing economic and social transformation, and it’s exciting and potentially rewarding to participate. However, only a small percentage of participants will become very rich.

The bubble will burst eventually. The problem about China’s labor market is the huge income gap. I-banking, VC, PE and management consultants are making US-scale salaries or higher, while other "corporate jobs" pay significantly less. What will happen when the bubble burst? When VC, PE, management consultancy, Investment Banks have to downsize? Will these people be willing to take a corporate job with 30-50% pay cut?

For the China based VC and private equity firms to proper, there needs to be a healthy exit market (e.g. M&A or IPO). I think it’s getting more and more difficult to exit in the next 24 months due to the current global economic condition.

Should you go to work in China? Ultimately it’s a personal decision. But, you’ll be better off and "reducing" your risk if you pursue an opportunity that you have a genuine interest, leverage your strength, and let you develop your career and learn. If it takes you somewhere financially, then it’s great. If the bubble bursts and you don’t get rewarded financially, it’d still be ok because you learn new things and become a better professional/entrepreneur/manager/etc.

You life and your career will last much longer than the bubble. Keep things in perspective while you participate in the bubble. 🙂

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Tags: China

2 responses so far ↓

  • 1 bowen // Oct 7, 2008 at 12:59 pm

    Very good points!

  • 2 Konfused // Oct 22, 2008 at 2:21 am

    Valid points there !!

    For China, the first gold rush was in early to mid 90s when tons of expats were setting low-cost supply chain hubs. From towels to tractors, everything was scaling up and foreigners had a big hand in it.

    The second gold rush was right after the dot com bust. China had already made a mark on the global map and everyone was excited about China but had little clue about what exactly it was. In this phase, VC/PE/HF made a killing. They took average companies public at Nasdaq and even though the shares plummeted later on, it was an easy sell all throughout.

    During these two phases, the salaries for expats gradually started losing steam, multinationals started localizing and things werent rosier any more.

    What is or will happen now is that China will evolve from a low cost global hub to a big domestic market which can help multinationals sustain their global margins. Its already taking shape in Chemicals, Automobiles etc. and should remain distinct through next 8-10 years. But jobs will come through only for really qualified expats with hands on experience.

    The thing with recessions is that you can survive provided you are brutally honest with yourself. Dont kid yourself about becoming a banker over night. Know your strengths, realign your expectations and you should do fine.

    Peace out !

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