Companies exist to make money for their shareholders. After 1971 that became the corporate mantra. Companies are able to exist at all, however, because of their stakeholders: employees, supply chains, communities and shareholders. The shift in focus from stakeholders to shareholders has justified many corporations forgoing doing what is right for what is expedient.

Google is an exception. It’s the reason, too, why Google will remain one of the most innovative companies of the 21st-century. It dared to do differently.

Related posts:

What’s Your Plan B?

Pulling a “Google” on China

The Power of the Twenty-somethings

Is China Still a Risk Worth Taking?

Cyber-kerfuffle

My friend Andrew Hupert recently wrote in his monthly online Chinese negotiation column for the China Economic Review lessons foreign businesses can learn from Google’s brush with death dealing with the powers that be. It’s well worth the read:

• You can’t always get what you want
• Sometimes “no” has to mean “no.”
• Don’t sacrifice your own core values for empty promises.
• Walk away slowly and leave the door open to come back later.

Who says companies cannot seek redemption?

Foreign IT companies are feeling less welcome than ever in China as the national government feels the country’s own sector is muscular enough to go it alone. On May 1, 2010 foreign companies that want to tender for government contracts will have to release their source code and security keys to government agencies for scrutiny. Central government wants to make its own information infrastructure secure against foreign intrusion, possibly pilfer leading-edge technology, and lock up its own domestic market to the exclusion of foreign players.

John Neuffer, vice-president for global policy at the Information Technology Industry Council, a lobby group, said: “The looming choice for many of our companies is to create costly bifurcated product lines, one for China and one for the rest of the world, or to ponder less ambitious trade and investment choices in that market.”

As China continues its turn inward, it endangers its ability to share in the information exchanges that flow through countries boosting Innovation. Ming Dynasty emperors did very much the same thing in breaking up the great commercial fleet of Zheng He, the shipyards in which the ships were built, and restricting the flow of activity across the Silk Road. Six hundred years later we may be hearing history’s echo.

Further reading: FT

Previous posts:

The Clever, the Genius and the Just Plain Dumb

Elementary, Watson

China’s Innovation Blowback

A couple years ago I had a conversation with a Chinese scientist in the pharmaceuticals industry who had worked in the USA for nearly 15-years. He and a Chinese partner had started their own lab to produce drugs in America, but were frustrated by the lack of funding available. He planned to set up a lab in Zhejiang province, where Wenzhou entrepreneurs were interested in diversifyng their investment interests.

This same scientist may now be part of a major trend that sees China having increased the number of peer-reviewed scientific papers more than 64-fold since 1981,according to Thomson Reuters. America with more than 300,000 papers still published more than three-times the number of papers as China in 2008; however, according to the research company, China could be the largest producer of scientific knowledge by 2020.

The Financial Times article that discusses survey findings sites that nearly 10% of the Chinese papers were co-authored with scientists in the West. A substantial source of the papers recently generated come from Chinese scientists who have lived in the West for several years, and who now spend part or all their time in China with the support of government subsidies intended to bolster scientific research in China.

A genuine telltale of China’s scientific development is a check of references the papers cite. When Pareto sees 20% of the references of papers worldwide refer to researchers schooled and based in Mainland China, and when Western graduate students in the sciences come to China to study and to conduct research, then the world may see a genuine tipping point in the quality, uniqueness and kind of knowledge China is contributing to the world.

Until then, the country is just manufacturing facts.

Further reading: FT

The Chinese rocket scientist Qian Xuesan once asked, “Why does China produce so many clever people, but so few geniuses?” He died last year at the age of 97, since when a plethora of answers have been bandied about in cafes, bulletin boards and social networks. Still, it’s said Bill Gates once quipped, “If a genius is one-in-a-million, then China has more than a lot geniuses”.

So why haven’t all those clever souls and unsung geniuses not created a more innovative Chinese society? China, it’s true, excels at innovation, but not disruptive Innovation. “Small i” innovation is about patching and work-arounds – the work of clever people. “Big I” Innovation is about changing the course of markets and even of societies – the work of genius. Chinese culture and history have always been supportive of “small i” innovation, due to the capricious nature of local government policies and decisions; and due to dramatic turns of events – revolts, revolutions, banditry, dynastic dissolution – that quickly destroy the fruits of labor. Hence, the tendency of so many constructions and creations in Chinese society to be just “good enough”; after all, who knows how long such works will be able to stand?

The Chinese government throughout the ages has not supported disruptive innovation in the vein of the Western style. Western entrepreneurs look forward to upsetting the apple cart (Americans, in general, more than Europeans); Chinese rule throughout history has not inculcated the Western sense of Innovation through its laws (meant to maintain stability); arbitrary application of the laws (meant to maintain local control as conditions change); or through the value it places on copying/memorization in education (meant to “harmonize” thinking and behavior).

The current government trend toward absorption of parts of the private sector (guojinmintui) by the State does not bode well for Innovation in China; nor does the march toward heavily bounding the internet from international flows of information. Increasingly, any Chinese Innovation will first of all develop from the requirements of the country’s home market; the technology and information walls the government is putting in place will severely inhibit Innovation applicability in international markets.

Now that’s just plain dumb

Read more:  NYT

As I sidled up to the counter in a Starbucks in Suzhou recently, the attendant – already well aware of my taste for espresso – called out the order to the barrista and then asked me, “Have you seen Avatar?” I didn’t know the Chinese name of the movie, so it took me a few seconds to figure out what she was on about. She chattered on, “It’s supposed to be amazing!” She pointed to the barrista, “He waited two hours in at the box office to get tickets. He said it was worth the wait.” The young man attending to my espresso grinned sheepishly.

Chinese officials are shutting down Avatar in about two-thirds of its movie theaters throughout the country. The movie has been wildly successful in the country, despite any allusions to military excursions far from home. Though foreign films are allowed to stay in China only about ten days, the film still apparently has a lot of pent up demand. China only has about 2,500 theatres and mostly those at or near middle class level will be able to see the film. Seating several hundred people at a time for a film that demands it be watched on a big screen (with or without the 3D glasses), means several hundred million people will be sorely disappointed when Chow Yun Fat (easily one of the greatest actors in the world, in my book) will stroke his pointy white beard as Confucius on Replacement Screens.

Though it would be considered rude and culturally regressive in China to protest the screening of Confucius in place of a glossy American sci-fi adventure film, I wouldn’t be surprised if many would-be theatre-goers simply did not attend screenings of the historical fiction. Certainly, DVD sales of Avatar will accelerate more quickly and in greater volume, much to the delight of the DVD black market in the country.

In any event, look forward to lines into remaining Avatar screens to be even longer, and demand to increase through word-of-mouth. It looks like it will be a while before I see the film, as I have little patience for waiting in lines with the chattering masses.

An espresso, anyone?

Further reading: NYT

Updates: Avatar survives on Chinese Screens (WSJ), China’s zeal for Avatar crowds out Confucius (NYT)

It has been a frustrating past year in China without direct access to Google  Photos and Youtube, with broken search-result links, disruptions in service, and the corruption of Google Docs, making the application suite all but unusable at times. And then they went and hacked Google customer  accounts.

I hadn’t expected to see the powers that be succumbing so soon to hubris on such a bald-facedly international scale. Perhaps with their victory a year ago in cowing Microsoft into submission, they calculated they could poke Google in the eye without Google so much as blinking. Recall that in the Fall of 2008 Microsoft came very close to remotely shutting down every version in China of its operating system that was illegally installed; that likely meant more than eighty percent of all the computers in China.

Now, China is dealing with a company with (professed) scruples: Google doesn’t like any of its customer accounts, it says, hacked. And indications are strong that the force and sophistication of the hack point at China’s national security apparatus. Like so many other aspects of its tentative entry into the larger world, China has clodded onstage like a hick with great muddy boots and passed gas into the microphone. No ballerina, is China, when it comes to delicate maneuvering in global affairs.

But then, the powers that be have never had to finesse their way domestically. They like it that way. Google’s response to the hack, it’s threat to pull out of the market, that it does indeed pull out of the Chinese-language market -all fit well in the central authority’s world view, which does not include sharing China with powerful, globe-straddling multi-nationals. This is guojinmintui - literally, “the state advances as the private sector recedes” – with international characteristics: the leadership is feeling out how much of the world it can co-opt before it completely closes in upon itself: culturally, with trade, on the internet. Satisfied with itself.

Google: Croesus and Solon.

For years I’ve been going to the local post office in China to send off express letters; or, I’ve called a local private carrier to come to the office to pick up and deliver parcels of the same paperclip weights. Local providers, for the most part, have been quick and efficient handling my letter-sized packets. All that changed in October of last year with the Chinese government’s implementation of a law barring private companies – domestic and foreign – from competing with the State in the express letter market. Though it seems like a government plot against foreign companies, I see the move as more of guojinmintui; literally, “the state advances as the private sector recedes”.

The China supply chain and logistics magazine Chaina, based in Shanghai, this month carried my first column on China’s supply chain and logistics scene. This month, I talk about the impact the new law is having on Chinese private businesses and the large international parcel delivery services like UPS, FedEx and DHL. You’ll find the magazine here, with the article on page 16 of the online (and print) publication.

A Chinese friend in the commercial real estate industry told me how her company’s plans to cash in on Hangzhou’s repute as a services outsourcing depot for the Shanghai financial industry has taken a turn. Hangzhou’s economy as a popular tourist destination has become nearly as pricey as Shanghai’s, she told me. The cost of labor has risen accordingly, making Hangzhou increasingly expensive for the sorts of routine back-office service functions the sector can handle well: a lot of repetitive keying in of paperwork into computer systems, mostly. Meanwhile, the global financial downturn has taken a hit on Shanghai’s financial industry resulting in headcount reductions at many companies.

Though it seems only the more basic of services outsourcing offerings in Hangzhou may have been priced out of the market, there is still a plethora of offerings to be made, with higher-value adds. Still, China’s stab at the global services outsourcing may be severely curtailed if the costs of doing business in the cities with the talent continue to climb.

I just received a press preview of China Logistics Development Report 2010, published by China Intelligence Online. There’s a lot of statistics about past developments in infrastructure projects over the year, as well as a reference to the New Postal Law, which ostensibly blocks 80% of foreign competition inside China if rigorously enforced. And given that DHL is plowing millions into a logistics and customer service center in Chengdu, they can be none too happy with the policy shift.

In particular, the regional round-ups in the Preview are engaging. I found particularly interesting developments in the Southwest, where the report discusses a pan-Asian rail network that includes a rail-line from Kunming to Singapore. Now that would be an interesting ride!

You can get the report at CIO’s Shop.