Monday, January 05, 2009

One Billion Customers: Lessons from front lines of doing business in China By James McGregor

 

 

Intro Chapter: A startup and a turnaround

China is both that.

The Business concept of the Chinese

· Marketing strategy of the Chinese:

- Sell with empty pockets but big ambitions, Chinese mystique and the dream of a billion customers.

· Some Chinese business practices that exist till today still mine the cracks in half-reformed systems and arbitraging between the state and the private economy

The Chinese Government philosophy and its organisation

· For most party officials, life is guided by 指鹿为马。 Acting to believe in the Communist system in their talk and yet totally capitalist like in their actions.

· In China today, the Inner Court is the top several hundred Communist officials. The Chinese military and Government watch dog organisations report to the party, forming the Outer court.

Chinese values and law

· China is a shame based society while European has been a guilt based society. The West, with the society's religious orientations, many controls for individuals are internalized. In China, they can feel pretty good about doing almost anything as long as they are not caught.

· China is “Rule by Law”, not “Rule of Law”. The Chinese law system has adopted the law philosophy of Japan and Germany and not the common law of UK and US. Hence judges, are not impartial referees but inquisitors. Justice in China is ultimately a political decision.

Chapter 1: The Grand Bargain

China’s path to the WTO – a discourse on the historical baggage of the Chinese and how to take that into consideration in your business considerations.

Your Chinese Business Counterparts and their attitudes

· No matter how egregious the demands, the Chinese can say it with a straight face. They will ask you for anything because you are stupid enough to agree.

· Chinese are experts at pushing the impression that you need them more than they need you. For the Chinese, the outcomes are more important than truths. You may be told of some obscure regulations when there are none. The Devil will always be in the details. You will need expertise to verify virtually everything that your Chinese counterpart tells you.

· The Chinese are adept and subtle readers of foreign attitudes. It is okay to be tough and steadfast, but disastrous to be insulting

· Humor is good if you are poking fun at yourself. You are expected to be sensitive to Chinese feelings but don't expect the same in return.

· If u don't give the Chinese what they want, you will be labelled as unfriendly. Don't be shy to tell the Chinese that this is business, not friendship and friendship can grow onto of a fair deal for both sides.

· Just below the omnipotent exterior projected by Chinese bureaucrats and businesspeople, there often lies a reservoir of insecurity that results from a social system ruled by shame. You lose nothing by admitting blames and moving on. Treat even the most obnoxious Chinese negotiators with exaggerated respect. Engage in the theatrics but don't let it slide into substance.

Approach to business plan with the Chinese.

· The prevailing mentality in China is the zero sum. Convince them that there is a win win possiblility.

Solution:

Create a win win roadmap. Layout for your Chinese Counterpart a step by step technology transfer and domestic manufacturing plan that provides what China is seeking but keeps you in the game for the long run. If that isn't possible, make your money on the first deal and move on.

· A company must understand what China as a country needs and wants, only by blending that into your business model, can your company succeed in China.

· Contracts are not a guarantee of anything. It is the relationship built during the negotiations of the contract that will give your business some hope.

Top CEO and doing business commitments in China

· Many companies bosses set themselves up for the Chinese divide and conquer strategy. The best approach is to have the CEO to wait until the negotiations are over then come in to seal the deal. If they insist on coming in the exploratory stage, make sure they ask questions and don't commit.

· Don't come right in to meet the top leaders and get a vague commitment. The Chinese will know the boss want the deal and squeeze the underlings for the best deals. If the underlings refuse, your boss will hear from the Chinese that your underlings don't understand China.

· If your boss wants to do a quick deal in China, lose his or her visa. (Chapter 6.)

· Don’t fall for China’s brilliant use of its huge size and 2 thousand year tradition of manipulative political pageantry to intimidate foreigners into accepting unwise deals.

Chapter 2: Same Bed, Different Dreams

All about Joint Ventures, avoid JV with Chinese Governments! The story of China International Capital Corporation – a joint venture between Morgan Stanley and China Construction Bank

What the Chinese Government really want out of JV:

· Avoid joint ventures with Chinese government counterparts.

· The Chinese government often isn't really keen in forging genuine partnerships. It is just simply a vehicle to gain access to foreign capital, technology while retaining Chinese control.

· Expect that your relationship with the Chinese government partner will, at best, amount to “ peaceful coexistence”.

· Often the Chinese send it their best and brightest to the joint venture, while the foreign partner brings in inexperienced foreign managers or deadwood pushed out of headquarters.

What to do if you are already in a JV

·

· Use translators whose only job is just to translate. Using your underlings to do so may give them a chance to further their own agendas.

· Useful trick to earn some money if you land in a 50-50 stake or a minority stake. Let the headquarters hold back some crucial technology, then act as a third- party supplier to the joint venture and overcharge for the item.

· If the Chinese require a joint venture, get a majority stake and appoint your own CEO, CFO and HR.

· Never trust a Chinese feasibility study. It will be aimed at attracting your interest, not define the real situation.

· You can't do too much due diligence on prospective partners. Understanding your partner's political and family connections is essential.

· Contract details matter less than the personal relationship formed. The person running the business should negotiate the contract. Let your lawyers be the bad guys to raise the possibilities of things going wrong.

· Don't hire the party leadership's kid. If you need such help, consulting contracts with time limits are the best.

Chapter 3:Eating the Emperor’s Grain

Corruption in China. The Good, Bad and Ugly. Story of Lai Changxing

Good Corruption methods:

· Mix training trips with opportunities for tourism and relaxation. Many state owned enterprise and officials lack this opportunities. Important to have company officials accompany these delegations from start to finish because the personal friendships developed are invaluable.

· Many Chinese now though are well funded and well travelled. Hence, conduct exchange programs where they work temporarily in headquarters or high level training opportunities.

Bad Form of corruption:

· Engage Chinese consulting companies. Then don’t ask.

Ugly form of corruption:

· In a weird twist of ethnics, cash bribes signal a bond of trust between the people involved because they have to feel comfortable that they will not be exposed.

What to do with about your own company and corruption?

· Your Chinese employees and partners have a confused ethical and moral framework, result of a society turned upside down by reform in a country lead by a party that has shifted from wealth repudiation to wealth creation.

· Treat your entire company like it is your finance department. Use software to promote transparency, removing power of individuals.

· Guanxi is overrated, temporary, nontransferable, and resides in the hands of the individual

Chapter 4: Dancing with Dinosaurs

Battle against the bureaucrats. Dow Jones and Reuters vs Xinhua.

· When fighting battles in China, you can't embarrass the system. Your arguments, more so as a foreigner must be wrapped around what is good for China, not what is wrong with the Chinese government.

· China has a presumption of government control, so unless something is expressly permitted by law, you can't do it legally. Contrast with America, where the presumption is one of individual freedom.

· Having a high set of principles to guide your negotiations is fine. But you need to have an “iron ass” strategy to negotiations. The Chinese grow up enduring never ending speeches. It is best when negotiating to develop an oratorical loop that you can politely repeat hours after hours. He who break first loses. (However, it only seems to be possible when you are the side that is asked to comply with something.)

· If you must fight the bureaucracy, take the fight to the highest possible level, where officials are reasonable and focused on China's larger interest.

· Government officials can lie to you but you cannot lie to them. Exclude information but don't provide false information.

· Play the “dumb” foreigner role when necessary. The Chinese believe that their system is so complex that foreigners cannot understand it. Tie them in knots by asking detailed questions about how the system works.

· Understand and use the fact that most Chinese government officials live in fear of being criticized for not upholding China's interests.

Chapter 6: The truth is not absolute

Media in China.

Interesting points

· Singapore press – possible to provide sophisticated government propaganda that openly discussed problems, albeit from the viewpoint of an efficient and noble government's efforts to solve them.

· Your company public relations can learn from the Communist party. Keep low-key propaganda campaigns going. That doesn't mean always generating headlines but regularly putting out your own spin. It doesn’t matter so much what is being said because any message serves as a defense against other ideas popping up.

Chapter 7: The best laid plans.

Shows how entrepreneurship and the market can beat the market planners. 小灵通 vs Ministry of Information industry.

· Chinese are capable of incremental innovation, but not innovation breakthroughs. Chinese re very good with hardware, continually refining existing technology and products. Chinese are very good at perfect execution. They produced many fabulous pianists, violinists but very few original conductors.

· China is not one market, but a collection of many local markets, each with its own practices, traditions and methods of local protectionism.

· Protect your technology jewels because China’s teach sector is based on reverse engineering.

Chapter 8: Managing the future

Just the conclusion

· The Chinese has got 2 identities – the individual person and the organization person.

◦ Japan, employees only have one identity, the organization man. Even the rituals of drinking are considered company actitivities.

◦ In US. Companies are structured to make decisions based on merits and systems that are designed to ensure cooperation between employees, regardless of their personal relationship.s.

◦ In China, surface harmony is at the core of the organisation. As individuals though, they often disagree and go their own way. On the surface, Chinese appear to be a collective society. They eat together, travel together. But below that collective veneer is a dog-eat-dog spirit that makes the Chinese among the world’s most individualistic and selfish people.

· China's companies tend to diversify into anything and everything that makes money instead of focusing on their core business. Academics estimate the average life of Chinese companies to be 5 years or less.

Human resource management in a company in China:

· For foreign companies building an effective Chinese executive corps, mentoring is key. Chinese fast growth and competition for top talent has resulted in many Chinese rising to top management positions quickly. While outwardly confident, many are terrified by their responsibilities. Long term monitoring involving real projects where people make decisions and learn how to make them in future is the most important.

· Layer your management with people all over the world and China for your corporate culture to dominate instead of ethnic culture.

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