Letter From China - How To Succeed In China Without Really Trying

I hail from a town in India which has produced some of the most successful hoteliers, bankers and educators. They have made a mark as successful entrepreneurs not only in the town of their birth but even in nearby states and far away lands. They possessed all traits that you would look for in an entrepreneur. In fact, for me they were the quintessential entrepreneurs and I grew up to believe that true entrepreneurs every where else in the world would be like them. But this belief changed when I landed in China.

When we look at our homegrown entrepreneurs and appreciate their successes, we underestimate and fail to appreciate the role of a favourable environment and pro-business government policies. Till not long ago, private and individual enterprises had a low political status in China and were discriminated against in numerous policies and regulations. A report issued in 2000 by Chinese Academy of Social Sciences bemoaned that the ‘legal, policy and market environment is unfair and inconsistent for private and individual entrepreneurs’. The discrimination existed more to protect the State-Owned Enterprises (SOEs).

Post 1990, privatisation of SOEs resulted in a new breed of entrepreneurs. Over the past decade, ex-employees of the state-owned enterprises and party cadres were one of the largest social groups to establish businesses.

There are other factors which have affected the evolution of local entrepreneurs:

The concept of Difang Baohuzhuyi (local protectionism)
It seems neither communism nor capitalism can change some things in China, particularly things having to do with regional attitudes and behaviour. The feeling of localism is so strong in many areas in China, that local authorities virtually ignore national laws and favour the interests of local residents and businesses over national interests regardless of the situation.

The concept of Bao (social reciprocity)
A typical Chinese is used to dealing with people on the basis of social debts built up through a variety of personal relationships in the past — with family members, relatives, teachers, friends, business associates, and employers. In accepting help from various people, the Chinese build up a reservoir of debt that they owe to these people. By the same token, they also build up a bank of ‘receivables’ from people they help along the way.

The concept of Guanxi (relationship based on mutual dependence)
The whole of China, socially, economically and politically, runs on personal connections — Guanxi. People spend a great deal of time, energy, creativity and money on developing and nurturing connections.

In an ever changing world of economics, entrepreneurs in China have to balance his ‘oriental’ brand of entrepreneurship with ‘occidental’ values. How do they do it?

Zhu Jong was a teacher of Chinese Literature a decade ago. He purchased a small SOE, thanks to his connections with some party insiders. Through sheer hard work, a well organized sales network, the power of personal connections and Difang Baohuzhuyi, he built up this business into a successful enterprise. Today he is the chairman of an enterprise which has a turnover of over $100 million. Chairman Zhu wants his enterprise to go pan-China and is seeking an MNC partner. He has attached a value to this association and is confident that he will get a high value from one of the MNCs who is ready to pay a good price for the market space.

Lau Chiu was also a teacher. His classmate rose to become the local deputy mayor in charge of housing development in his historical hometown. Lau’s social balance sheet won him a favour from his old mate and a top developer was asked to take Lau’s help in the supply of materials for his job. Lau, now an agent for a multi-national building supplies company, is the major supplier to the housing development job and the business is good for everyone involved. The deputy mayor has done well too in the party hierarchy as he is seen as a probusiness party official. It was Bao all the way. A clear case of a win-win situation.

I have now known Wang Jong for at least two years. He is a management graduate from a respected university and started his career as a manager in a SOE. During the course of its privatisation, he bought the shares of the company. He built his business through his contacts with the local government and Guanxi. He is today the Chairman of an enterprise which is a top regional company in the industry in which it operates. Wang Jong feels that he must now professionalise his company and put proper processes in place. He is seeking an MNC partner.

Cao Jong was also a General Manager of a chemical SOE. He bought the entire stakes of the erstwhile SOE and built the business through a mix of Guanxi, Bao and Difang Baohuzhuyi. All this helped the business grow upto a particular level. Cao Jong now realises that to compete in the changing environment, he will need to develop or acquire the latest technology. This according to him can only happen if he joins hands with an MNC.

A landscape like this throws up new opportunities for joint ventures. In some industries, consolidation and rationalization will also occur. The Chinese government is also promulgating new laws which are fair and equitable to the private and individual entrepreneur.

Someday, not in too distant a future, when I will meet Zhu Jong, Lau Chiu, Wang Jong and Cao Jong again, they too would have travelled the road to becoming international entrepreneurs just in the same way as the entrepreneurs who hail from my town back in India.

By Jagdish Acharya
The Economic Times - Times News Network
Friday, May 11th 2007