Shanghai Expat.com has been gracious enough to re-publish some of my posts in their Channels section. The latest re-post was about MBA programs in China. The Shanghai Expat is a fine website chocked full of the latest China news and local happenings in Shanghai. I’m privileged to have some of my pieces re-published there.
Keep up the good work, Shanghai Expat.
Interview Revelations
A British friend told us round the table of beers (well, near-beers: Bud and Tiger, mostly) he was disturbed by the answers he had received from three of the five Chinese nationals he was interviewing for a position at the Western company at which he is a top manager. All of the people he interviewed for the middle management position currently held jobs. He asked the simple question, “Why do you want to work here?”
The first engineer answered, “They are closing the factory.”
The second engineer said simply, “The factory is closing and moving operations back to Italy.” Italy! I thought to myself; that s one of the European Union countries most affected by manufacturing outsourcing to China.
The third engineer replied, “They are closing our factory and sending it back to Mexico. Two years ago I helped them bring the operation from Mexico to Suzhou.”
The British manager shook his head over his pint of Tiger Beer, said, “Can you believe that? Just two years after bringing sending all that equipment and getting staff hired and trained in China they’re sending it all back to Mexico!”
Suzhou will truly become a more interesting place.
Another One Bites the Dust
A Chinese friend recently told me over the dinner table the story of a Korean manager whose plant had closed in the Suzhou Industrial Park (SIP). He was married to a Chinese, and had an infant and the requisite apartment, appropriately mortgaged to a local (nationalized) bank. The bank repossessed the flat and the Korean had no prospects for work. He jumped off one of the high rises in SIP to his death.
Guess he figured things were worse back in South Korea (which they reportedly are).
Volunteers ‘R Us
During a recent dinner with the coordinator of a program that arranges the educational sessions for visiting MBA and EMBA I happened to ask my host what she was doing before she joined the organization.
“I volunteered with Up with People!”
I had to do a double-take. “The American program?” I asked. “M-hm,” she answered, clearly happy with the surprised response she had elicited. My own brother had traveled round the States years ago with the group, singing and dancing and doing some sort of charity works I was never quite clear on.”
A British acquaintance told me a few days later Up With People has a Christian group and a “normal” group [sic]. He himself was going off to work with the Bookworm’s Sichuan Earthquake Relief organization, which had set up a charity based in Hong Kong. He would be responsible for helping get the funds into the Mainland, and the resources into the hands of the volunteers who would help those hardest hit by the quake re-piece their lives back together again.
Both my dinner host and the Brit assured me there is a major trend afoot of charity work in China. I had said to my host, delicately cynical, “I thought most Chinese in their twenties are self-absorbed and just want to make money.”
“Yes,” she had answered, “most are that way. But there are more of us who want to travel around the country and help where we can. I know people in Xinjiang and Inner Mongolia who are doing charity work there.”
And apparently, there’s an American-based group, Hands On, that helps charity efforts organize themselves. According to the Brit, they’re sanctioned by the Chinese government and are quite active in China.
What’s next? The moon turning blue?
Back to Capacity
While the Korean companies seem to still be laying off workers and repatriating families (a British friend who lives in Shanghai recently told me the Korean school in Shanghai had completely closed down), some European factories in the Suzhou area seem to be on the mend. A fair number of the companies had gone to two or three days each week of operation, while others had furloughed assembly workers and machine operators until the export economies had improved.
Two British friends with whom I was having lunch at Blue Marlin 3 in Suzhou noted that – anecdotally – some factories were back up to full capacity. “We’re typically slower in the summer,” Ken (not his real name) noted. Ken had ordered his typical soup and toast for take away, but had nonetheless found the time for a couple shandies. “This year though, the Asian market we service has been booming. We’re trying to schedule orders out to keep things under control.”
Alistair (not his real name) decided to change his own order habit from soup and toast (what is it with these Brits and their soup at lunch?) to a good ole’ American cheesburger (with Chinese characteristics, of course). Alistair cited that a large Danish manufacturer with whom we’re friends of the GM had gone back to full capacity as well, chock full of orders. And we had all heard a month earlier that a mutual British friend’s factory in Suzhou New District (SND)- which he owns – has been doing well after a dreadful 2008 that saw the roof of his factory cave in during the Great Blizzard of 2008 and followed by fights with insurers and the flight of customers to the safety of not spending any money at all.
I was thoroughly enjoying my bacon sandwich and fries while all the time digesting what my friends were discussing. Between mouthfuls of bacon I mentioned that though operations had finally run their inventories down and were once again beginning to manufacture wares, the fact was that buyers in Western companies were exhausted consumers: many still neither had the capacity to buy nor the financing. The Americans, especially, still seemed exhausted. Economists forecast that manufacturing restarts were merely a blip that would be followed by a decline in manufacturing as entire industries (like automotive and aerospace) restructured.
Alistair predicted it would 2011 before manufacturing would be right again. “There’s a lot of consolidation of players that still needs to go on,” he prophesied. “All the small players or the ones on razor-thin margins will go out of business in China or be absorbed. He finished his burger, pushed the plate away from him. He hadn’t touched his fries (or chips, as the Brits like to call them).
“That’s why some of the larger Chinese manufacturers are actually buying from foreign makers here in China – the foreign operations are better funded and tend to be better run,” Ken added. He polished off the last shandy, stood to leave.
“China’s going to look very different in a few years. Very different, indeed,” I said finally, and burbed.
Hope the bacon sandwich formula doesn’t change, though.
Terror hit Chungking [Chongqing] with all the impact of the bombs. Panic came from the known – the dead, the bleeding, the hundreds of thousands who could not crowd into a shelter…” - from Thunder Out of China
I read a lot. Usually about China. There is just so much about China – its history, its culture, its society – that the wealth of information and stories about China seems to me inexhaustible. Just some of the Chinese business books I’ve read include: China Shakes the World, by James Kynge; One Billion Customers, by James McGregor; Three Billion New Capitalists, by Clyde Prestowitz; Made in China, by Donald Sull; Managing the Dragon, by Jack Perkowski. Most are good in their own way: McGregor’s book has excellent and timely business cases that framed today’s current China business news in a more relevant way to me; Prestowitz’s book read like a “Globalization Economics for Dummies” Reader, which I greatly appreciated; and Sull’s book presents a very relevant business model and China business development strategy that I know firsthand to be relevant because my own business lives in the same sort of dynamic environment about which he writes.
Sometimes, though, I just can’t t pick up another book about China business. And then I have to remember: What do I really enjoy reading?
CHINESE HISTORY, always comes the answer. Especially well-written, rock-em sock-em history in which the characters jump out from the pages as only individuals who lived and loved and died during times refracted through if not completely filtered by our memories.
Some of my favorite writers were the China Hands, Western journalists like Edgar Snow (Red Star Over China) and Teddy White and Harold Isaacs, Agnes Smedley and Christopher Rand (whose son ten years ago published the book “The China Hands,” about his father and the coterie of China-based writers of the time, from the early 1920s to 1949). It’s writers like these that fired my own imagination decades ago about China and its role in the world, the challenges and triumphs of its people, and put into perspective the distance China as a country has traveled to come to this point in its social and economic evolution.
For instance, take Thunder Out of China, by Teddy White and Annalee Jacoby. The two writers met on assignment for Time Magazine in China during the late 1930s all the way through World War II and up to the time Chiang Kai Shek lost China to the Communists. Now this is writing, my friends; writing before there was television, when movies were an exotic luxury, when all there was was word-of-mouth and the broadsheets and onomatopoetic radio scripts; before there was the internet and emails and SMS messages that have provided us with still-born if not aborted prose. Thunder Out of China is about the history of China during and just after the Japanese War in China (actually, the Chinese call it, The Japanese War of Aggression Against Chine – they don’t call it “World War II”).
How’s this for a try on, about the Japanese bombing raids on Chongqing, in central China, in the late 1930s, before the US had entered the war:
Terror hit Chungking [Chongqing] with all the impact of the bombs. Panic came from the known – the dead, the bleeding, the hundreds of thousands who could not crowd into a shelter. Even more it came from the unknown – the droning planes from a new age, for which superstition had no explanation and no remedy. Japanese incendiaries started a dozen small fires, which within an hour or two had met in several distinct patches of creeping destruction that were eating out the ancient slums forever. Within the back alleys, the lanes, and the twisting byways of the city thousands of men and women were being roasted to death; nothing could save them. The curious patterns of ancient temples, lit from behind by an unreal sea of red flame, were outlined against the night. All the compound noises of a great fire wre intensified by the setting of the old walled city – there were the whistling and crackling of timbers, the screaming of people, and the intermittent popping of bamboo joints as the lath-and-bamboo slums dissolved in the heat.
Now compare this with one of the business books I’ve been reading (from Made in China, by Sull):
In 1995, the company seized approximately 25 percent of the domestic market and overtook then-leader SMC. Few would have predicted this turn of events, since 1995 was the very year that SMC entered into a joint venture with the global appliance heavyweight Whirlpool, which was then making an aggressive foray into China. The joint venture initially provided an opportunity for Galanz, however, because Whirlpool inserted its own management team, that lacked local knowledge, dismantled SMC’s experienced sales team, and required that major decisions be cleared first through regional headquarters in Hong Kong and then through the corporate office in Benton Harbor, Michigan.
Don’t get me wrong, I liked Sull’s book, but, outside of my shaking my head at the stupidity of the Whirlpool management team, it – and all the other China business books – are not, well, inspiring.
Books by the long-dead China Hands will live forever, though: they wrote about history, and real lives, and stories that still reverberate today. The experiences they lived through and that they relate are the very cornerstones of the history we modern-day China Hands try to aspire to. They provide us not just with really great stories that rivet you to your chair while you read them, but also with the why’s, the what-for’s and the just-might-be’s Westerners and Chinese need to consider during the breakneck rejuvenation of twenty percent of the world’s population.
“History Doesn’t Repeat Itself,” Mark Twain wrote, “But It Does Rhyme.” Reading books written by the China Hands decades ago not only inspires us to put our best foots forward into the future of the world, but just may be able to help us avoid some of the tragic verses of the past.
*Revised from original November 11, 2006 article.
Black Dragons are Black Swans with Chinese characteristics. Nassim Nicholas Taleb popularized the concept of the Black Swan in his book of the same name. Black Swans are highly improbable events that have consequences in proportion only to the improbability of their occuring at all: the more improbable, the more consequential. The recent meltdown of the global financial system is a Black Swan: the highly improbable events leading up to and coincident in the cascade of failures was a phenomenon few in the world expected. Black Dragons are equally improbable, but have the distinct fingerprints of the Chinese culture, psyche and system of governance all over them. The Blizzard of 2008 in Central and South China in combination with coal and electricity price controls, weakening export markets and hyper-inflated costs for inputs spawned just such a Black Dragon. Strict controls on the media during the run-up to the Olympics in combination with corporate and government collusion gave birth to the Dairy Scandal in 2008. Indeed, it could be said that 2008 was more the Year of the Black Dragon for China than the Year of the Rat.
The outbreak of Swine Flu in April 2008 led expat friends who were around during SARS to reminecse one evening at a local Suzhou pub about the impact SARS had on their operations. “Oh yeah,” one British engineer said, “it was great. No visits from the home office. No Vice Presidents or technicians or Inspectors to hand-hold while they were in China.”
“There was no production,” another friend chimed in. He was a production manager for a large Danish company. “There was nothing to do for weeks,” he said.
“So what did you do during the time?” I asked them.
“We drank beer!” one of the fellows laughed. The others heartily joined in the camaraderie, taking sips from their own glasses of beer. Of course, this is the last thing any headquarters would want to hear from its staff about its far-flung investment in China.
I had come to China on a project just one week after SARS had run its course and the WHO gave its all-clear that China was SARS-free. For nearly two months during the crisis, according to Chinese and Western business owners, business transactions in China had nearly ground to a halt as the government fought to isolate and then eradicate the virus.
The important thing to realize about Black Swans – and their Chinese cousins, Black Dragons – is that they are very difficult to predict, especially with traditional statistical and risk measurement methods. Black Swans and Black Dragons are exotic creatures: they live outside the narrow window of our Bell Curve view of the world and every once in a while, when the incidental becomes the co-incidental they swoop in through the portal of our perception to shake up our world view. So how do Western companies invested in China keep on the lookout for Black Dragons that may affect their businesses, and how can they protect themselves?
There are indicators that can give companies some idea of the direction, intensity and increased probability of the improbable happening in China. One indicator is the extent to which the government blacks out news about certain incidents: there seems to be an inverse-proportion relationship between the degree to which information is obscured in China and the corresponding impact of the issue on society. For instance, reports of children poisoned by milk powder had been reported (and subsequently squelched) in local papers a full nine months before the full scale of the tragedy exploded onto the scene. Another indicator seems to be a direct correlation between the extent to which the government works to divert the attention of domestic media reports and the severity of Black Swans; that is, an extreme disconnect between local media coverage and international coverage. Coverage of the Tibetan protests in 2008 is a case in point, wherein the dischord between state-controlled and international channels was so great that government relations and business was disrupted between China and the EU – France, especially.
Other barometers for on-coming Black Dragons include hyper-inflated commodity prices and unemployment rates (especially that of university graduates) within the context of seasonal adjustments, especially around holidays and commemorative dates in China (like Spring Festival and the anniversary of the Tiananmen Square protests). Chinese emotions and government watchfulness (read: censorship) tends to run high during these times, opening the window for a confluence of events to blow through society.
But what about the Black Dragons that seem to materialize out of nowhere, like the earthquake in Sichuan province in the Spring of 2008, or the spy plane incident of 2001 in which an American aircraft had to take to Hainan Island after a collision with a Chinese fighter plane? Unfortunately, there is no rational way to predict such occurences. However, decision makers can become more sensitive to the possibility of Black Dragons by referring to the current narratives that explain the occurence of nonlinear events in a more digestable, more acceptable linear fashion. For instance, an increasing number of clashes between Chinese and American naval vessels off the coast of Hainan Island has increased the volatility of the flashpoint the South China Sea has always presented to international relations. The Sichuan earthquake exposed the likelihood of additional substandard construction techniques and materials in earthquake zones that may affect operations in the region.
Very few Western companies with which I am familiar in China have contingency plans and budgets to deal with Black Dragon events. SARS saw the mass evacuation of expats and their families at enormous cost to companies, not to mention the damage done to balance sheets by operations that had to be taken out of production. Companies also need to consider local and expat staff that may be personally caught up in Black Dragon events. In the event of death or dismemberment, companies in China are responsible for compensating the Chinese families of the staff affected – even if the company was not at all responsible for the event.
Of course, a common sense approach to meeting the challenges the occurrence of the highly improbable event presents companies is to keep a cash reserve or line of credit that addresses the consequences of just such catastrophes. Also, as morbid as it may sound, providing staff training in self-supporting emergency services such as evacuation procedures and CPR techniques will reduce the risk of tragedy to employees on the job. The Chengdu-based Bookworm book shop went one better and coordinated emergency supplies and volunteers to help the victims of the Sichuan earthquake last year.
The New Zealand company Fonterra could easily have been swallowed up by the most dramatic scandal in China in 2008: melamine-tainted milk powder products. Fonterra had a 45% stake in a joint venture with Shijiazhuang-based Sanlu, the third largest dairy producer in China. When the story finally broke in September 2008 that Sanlu and other Chinese dairies had known about the poisoned milk and its effects on infants, Fonterra could say it had been the one that had been pushing Sanlu and local authorities to publicly recall the bad product. It took the New Zealand government to directly contact the Chinese central government to finally reveal the cover-up. Though Sanlu is effectively being remade and the central government has acquired the assets of the joint venture (some of which Fonterra may be re-purchasing), Fonterra has gone on to act on its promises to help Chinese citizens the best it could under the difficult circumstances. For instance, Fonterra is making donations to a foundation to support construction of maternal and infant hubs in rural communities. Now, the company is on track to treble its dairy exports to China to about 160,000 tonnes this financial year, because Chinese have lost a great deal of faith in local dairy products.
In other words, it sometimes pays to stick your head in the dragon.
Next installment: Why the World Should Care About China’s Black Dragons
Read the Black Dragon series from the beginning:
Thar Be Black Dragons in China
I’ve never met a GM in China who hired a Chinese local because she had an MBA degree; though I have met GMs that have encouraged local staff to obtain an MBA to broaden their knowledge of how their patron-company works and improve the local’s chances for eventually taking over the top position in the foreign-invested company. I recently told a journalist in an interview for the China Economic Review (July 2009 issue) that the expat managers in the manufacturing sector in China have a deep distrust of new hires with MBA degrees, due to what I call “expectation mismatch”: the GM expects the new hire to do a specific job and the MBA-holder believes the specific job is to tell the GM how to run his company. Down-to-earth nuts-and-bolts types do not take kindly to that sort of attitude; and the further away from Shanghai an operation is placed the less welcome MBAs seem to be.
However, during a panel discussion in which I participated at the University of Chicago’s MBA program on business in the Asia-Pacific several years ago, one of the other panelists – herself an MBA and an executive at a global recruiting firm – made the valid point that in the professional services like Finance and HR in a Shanghai or a Beijing the MBA degree lends some credibility to the training and experience a recruit may actually have. In other words, it adds polish and fills some of the holes in an individual’s otherwise patchwork background.
The MBA degree for Chinese nationals, though, serves an additional role: it helps them with communications and facilitation skills they otherwise do not develop. The traditional Chinese education system does not prepare them with the participatory skills that help them get ahead in Western organizations. Also, international MBA programs in China acculturate locals to international standards, processes and procedures for rationalizing business processes. In other words, the degree is a great primer for understanding the dynamics of organizations. The clash between newly-minted MBAs and the rest of us is that MBAs more often than not mistake “the map for the territory;” in other words, they tend to fit real world challenges into the templates they learned in school. And therein lies rub.
With that said, I always enjoy speaking at MBA programs to which I am invited in Shanghai and back in the States. No matter the age of the student – whether a straight MBA in her twenties or a more senior manager in a EMBA – the audience is consistently open-minded and energetic. They seem to genuinely want to “get it right” when they re-enter the corporate world with their newly minted degree.
I’ll next be speaking in Shanghai to a group of MBA students from the University of Reading (UK), on July 14, 2009.
Nevertheless, the China Economic Review interview was fun (and the reporter charming), and helped me to express my belief that MBA’s are not spawn of the devil – but neither are they saviors of corporate humanity.
The Singapore Straits Times article marking the 15th anniversary of the Suzhou Industrial Park (SIP) in which I was interviewed came out last week (May 23rd issue). Ms Grace Ng did a fine job of reportage. Some things I did not know about my adopted home/economic development zone that I read in the article included:
But Singaporean investors have learned their lessons, according to the article, moving on to Tianjin, Nantong and Dalian (Dalian was not cited in the article) to develop other industrial parks based on the Singaporean model.
Good thing, too: it’s a terrible thing to see a grown Singaporean cry.
Opening a Restaurant Chain in China: As Easy As Instant Noodles http://t.co/rA5EyvEi - http://t.co/JVKX4w9E