The Bicycle Kingdom and the Maglev

One of the first things you notice when you land in Shanghai is how clean, tidy and well run the airport is. I compare this to Indira Gandhi International Airport in New Delhi, India, where, on my last visit two years ago, due to a power failure at the airport, my bags were stuck on the conveyer belt for five minutes. Both China and India are deemed to be at a similar stage of newly advanced economic development, a viewpoint formalized by the acronym BRIC to highlight the shift in the global economic power away from the developed G7 economies towards the developing world. But what is it about China that has seen it surge ahead to become such a dominant force in the world? How is it that the “bicycle kingdom” has the first commercially operated high-speed magnetic levitation line in the world and only the third Maglev line to be operated anywhere? Why is an eminent Professor in China asking us to adopt Chinese names for ourselves, much like Chinese people living abroad are compelled to adopt local names now? Why should BRIC be rightly renamed “Crib”, with a capital C to highlight China’s extraordinary dominance as a developing market?

The China trip was a fascinating experience. Getting to meet the individuals and organisations active in the Chinese market and having the opportunity to question them directly really made the trip for me

While I frequently read about China in the news and the Economist, going to China and experiencing the people, culture and environment first-hand, gave new significance to my prior-knowledge of China.

Understanding, cultures and customs are very important as they provide a context for one’s experiences. But just how important these elements can be to doing business in China was a revelation for me.  The concept of “Face” is not hard to understand because, even as Westerners, everyone has face. When equated to Western values, face is very similar to the notion of reputation. Face is a dynamic, which applies to both personal and business relationships in China. Nearly all of the executives that we talked to reaffirmed its importance in Chinese society. It was interesting to note the emphasis westerners paid to this concept.

Corollary to face is the inseparable concept of guanxi or “relations”. Face and guanxi work hand-in-hand.

Similar to the concept of networking in the West, guanxi, was also repeatedly highlighted in various presentations to us. A clear example of guanxi in action was provided by one of the Enterprise Ireland guest speakers. In one incident, a Chinese staff member handed over company IP to his classmate, who was working for a competitor. When asked why he had done this, the response was that my classmate asked for it and so I was obliged to help him out. It may be important to realise that loyalties may not necessarily lie with the person or organisation that pays the bills. Interestingly enough, our Chinese presenter at one of the talks, played down the importance of guanxi to a large extent. While important, not getting “hung up” on these concepts was also an important insight.

While it always helps to know the language of the person that you are doing business with, its true importance was brought home to me during the China trip. I had always seen language as a “nice-to-have” when doing business, as a way to show that you made some effort or have an interest in your business partner. However, it is essential in the Chinese context. Several small experiences during my trip brought this point into focus.

Due to the tonal aspect of the Chinese language, pronunciation becomes particularly difficult for Westerners. At a restaurant in Shanghai, we wanted to order a bottle of water but ended up ordering a bottle of local white wine! Having directions written in Chinese was a time consuming way to get around the big cities.

Note that this level of difficulty was in Tier 1 cities in China. The importance of Chinese in other cities and the countryside was only going to grow.

During some of the presentations, the importance of the Chinese language was also highlighted. The head of multinational in China clearly stated that while he did not speak Chinese, he was certain that his replacement would need to master the language. In fact, he was adamant that to be truly successful in China the emphasis on language was important. I would have been unaware of the extent of the importance of the Chinese language in doing business in China prior to my trip.

Hand-in-hand with the commitment to learn the language was the importance of being based in China. The CEO of a fast-expanding online-business gave us some truly unique insights into doing business in China.

According to the CEO, an outsider in China, the only way to be successful is to work with local partners and staff that you can trust. While this may sound obvious, it has specific relevance in the Chinese context. The CEO pointed out that the Chinese take a long time to warm up to their business partners. He gave us an example of how he won over his secretary’s trust. He made a special effort to go to her wedding and gave a heart-warming speech at it. This gesture, he found, helped him build a lasting relationship with her and others in the company. He is adamant that your business will not grow unless your customers and staff trust you and like you. And this trust can only be established by showing your complete commitment to the business.

The CEO decided to move to China, as opposed to conduct his business remotely. He immersed himself in the local culture and customs, an experience he found rewarding for both his personal and business life. In fact, he even married a local Chinese girl. Not sure if I would go that far to show my commitment to the Chinese people, but the points he made really struck home. As a foreigner living and working in Beijing, his opinions carried a lot of weight with me.

Some other important lessons that I learnt were that signing a contract with a Chinese firm just means that they are now ready to do business with you. Prior to the trip, I would have assumed that once a contract was signed, the deal was sealed. However, listening to some of the people active in the field made me realise that things were very different on the ground. The idea that western business knowledge and education will enable me to succeed in China was also debunked by one of the presenters. Operational challenges are often deep and unique to China (such as the subtle differences between Tier 1 and Tier 2 cities). When cutting back, focusing on deep cuts to non-payroll costs are supported by Chinese staff members. This information is very useful and helps us understand the pride that Chinese people take in their jobs and their perception of how the firm values them.

Some of the key learnings from the trip were on getting the basics right when starting and maintaining a business in China: a) build the relationships first, b) localise your business and technology for the Chinese market, c) invest in recruitment and training, d) prepare “bibles” for each part of the operations, d) reward success among your employees and make it personal, and finally, e) focus, over communicate and stay very close to your competition.

I particularly enjoyed the talk by a leading brand management company based in Beijing. The presenters gave real insights into China’s consumer culture, a lot of which we experienced on the trip. China is a civilisation state and this affects the way in which Chinese people see things. The need to project and protect status is clear in present day Chinese society. Expensive cars and western influences abound. Yet, these influences have a distinctly Chinese feel to them.

China’s modernisation does not mean westernisation!

Like inhabitants of many countries, Chinese people are interested in accumulating wealth. In fact, they are now moving from “Show” to “Show you know”, phrases that hint at an interesting dynamic in the need to project wealth while maintaining some level of self-respect. Like many Asian countries, there is a strong emphasis on providing the best possible education for the next generation, “Baby MBAs” being the latest fad on mainland China. Unique to China was the importance of fitting in. According to one of the surveys presented, 86% of the Chinese people wanted to fit in. The concept of “soft-individualism” was also very unique to China. Stand-out but don’t stick-out was thought provoking. The idea of not sticking-out in the Chinese concept was new to me. I hadn’t considered the importance of being part of a group to Chinese individuals and this was an important learning point that is sure to help me in any future dealings that I have with Chinese businesses. Looking at the levels of motivation through the prism of a) me, b) we, c) the world also provided a unique view into the Chinese mindset.

While I continue to be impressed with China’s progress to date, I can’t help but feel uneasy about the way Chinese society is structured. The lack of religious and political freedom made me uncomfortable.

In fact, the influence of the Communist party in all aspects of public and private life repeatedly surfaced in the many talks that we attended.

One of our presenters stated that he was happy to have an open and frank discussion about their business. Yet he asked people not to tweet or blog about any conversations we would have. He half-jokingly said that he had family in China and he did not want to upset the authorities. The meddling nature of the government was also brought to light in the way in which the central government dictates the laws to be implemented. The case of the 70-90 rule, where 70% of the apartments being developed had to be under 90 square feet, is a case in point. Foreign and local developers active in China were given little prior notice before the law was enforced. This uncertainty in the business environment makes it very difficult to do business in China.

Corruption is a massive issue in China and a few of the presenters hinted at its adverse effects when doing business in China. During a frank discussion over dinner with one Irish engineer that works locally in China, the level and extent of corruption was laid bare. A reporter’s experiences with Chinese authorities also left a lot to be desired.

Prag Sharma

Overall the Chinese trip was a fantastic experience in which I gained insights into doing business in China that I would not have otherwise experienced.

Would I go back, yes I would……

– Prag Sharma, EMBA 2012-14