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May 8, 2008

Dear Fellow Investor,

"You look jet-lagged. Here, have an Oreo."

On our first evening in Shanghai I had a dozen China Strategy subscribers on my hands, looking quite dazed. The prospect of something as familiar as an Oreo lifted everyone's spirits.

Until, of course, they saw what Nabisco has done to make their favorite cookie work in China. You see, in China, no part of the Oreo twist-lick-dunk ritual makes the slightest bit of sense.

Would You Like Some Noodles With That?

There's a story often retold in China but never told to foreigners, and it goes like this: A group of peasants from the Shanxi Province win a contest and are sent to Beijing to be honored. Their hosts treat the group to a banquet. When the peasants saw all the food they burst into tears. So much food, so much waste. While at home, there was nothing. For millions of Chinese, the showcase of the coastal region is beyond their wildest imaginings -- and the promise of plentiful food is just a promise. It's important to understand China from the ground floor. Western companies who don't take the time to learn about the huge regional differences within China lose money and frustrate their backers. Learn about the U.S. companies doing China right and making us rich -- right here.

Nabisco lost a ton of money on Oreos before they wised up by making the cookie into a wafer and taking out the whole twist-lick-dunk piece.

The result: Oreos are now the best-selling cookie in China.

So the rule of success in China is this: make it Western, but not too Western. What America has done to Italy's pizza, China is doing to our coffee, chicken, fries, credit cards, and even beer and cosmetics.

Those brands that can bend find success. Those that can't bend, break, and a boat-load of American business people go back home, humbled and dismayed.

But investors here in the U.S. are told a nice lie: Every CEO in America, it seems, has a sound bite on how well they're doing in China. Up goes the stock.

Then the truth comes out and…down goes the stock.

For example, McDonald's is not doing well in China, contrary to what we have been told. The basic burger, unlike the basic cookie, doesn't adapt well to a culture unused to the taste of beef. In fact, beef just became a luxury item there.

Sorry, Micky Dee -- but nice try.

But Krispy Kreme doesn't even rate as a nice try. Their mistake is a classic one: move in, open up and expect a billion-person stampede. Trouble is, everyone in Asia eats savory food, first thing in the morning. Dunkin Donuts found that out the hard way.

Didn't anyone tell Krispy Kreme management? Or is the joke on investors?

So Who's Doing China Right?

GM has done a fantastic job in China. The company offers a bone fide U.S. icon, the Cadillac -- and still sells you a cheap and reliable commuter car.

News Corp, by contrast, did a miserable job: Fox was recently sent scurrying, it's tail between its legs.

But the poster child for doing China right is a fast-food outlet that sells Western-style…noodles!

Wisely, the company teamed up with local entrepreneurs, sought out local franchises, and adapted to local tastes.

Every trip through China with my China Strategy subscribers ends with a nice dinner at this restaurant chain. In China, where this is considered a top "date restaurant," a waitress takes our order and the very brightness of the lighting signifies abundant wealth.

By this time in our journey together, my subscribers had adjusted to Eastern ways. We settled on a Deep Sea Eel pizza, large with all the toppings. Just like the natives.

In today's issue of China Strategy I show you why you should invest in this wonderful Western-style noodle shop in China. The stock is as American as apple pie, and the profits you make will be as big as Texas -- all in a New York minute. And you, I promise, will feel like a smart cookie for getting China right. Join China Strategy now for all the details on how to invest in this company.