War by other means

It’s just not fair. The great financial meltdown was supposed to happen in China, not in the West, and that too in such dramatic fashion. After all, China is where we first saw huge non-performing assets, poor disclosure, opaque governance and cronyism at work, right? Would not the fabled ‘China price’ be an impossibility, but for secret government subsidies along with a good dollop of dodgy accounting, as many Indian and Western businessmen believe? Finally, the private sector’s share in China’s socialist economy continues to grow even while nationalization looms as a real alternative in the West. Truly, it’s a topsy-turvy world.

 

This book, authored by two business school professors and a research associate, adds one more element to the Chinese puzzle. Today, it is not just the giant state-owned enterprises (SOEs) that foreign companies have to confront when they do business in China. Privately-owned enterprises (POEs) numbering over 5 million (80 per cent of all corporate entities) comprise half of China’s GDP. Many such POEs, set up by first-time entrepreneurs, have already become global players and are giving multinational companies a run for their money. It therefore makes sense to examine how these companies succeeded, what worked and what did not. The book is the result of the professors’ intensive interview-based case studies of 20 typical POE founders. Their experiences answer, in an oblique way, the conundrums posed above, and also puncture some myths.

Take, for example, what happened between multinational Danone and its once “dream” joint venture partner Wahaha. After years of successful collaboration, the former accused Wahaha and three subsidiaries of using the Wahaha brand name without permission of the joint venture. Par for the Chinese course, you might say. Not quite. As the case brings out, whilst Danone contributed the initial capital, it played no role in the day-to-day management of Wahaha. As a result, once Wahaha became a recognized and valued name in China, employees, the trade and even consumers at large attributed it to the sole efforts of the entrepreneur. The claimed legal ownership of the brand thus clashed with its perceived moral ownership. Whilst still in dispute, the professors wonder whether a court victory will truly serve Danone’s long-term business objectives.

The HR practices of the POEs are noteworthy too. Every employee of Aiminger Shoes spends his first month learning the 106 procedures involved in producing a good shoe. This enhances knowledge, creates teamwork and engenders mutual respect, all of which lead to productivity and quality. The underlying philosophy is worth quoting: “Take for example the feeling that arises when someone else appears to be getting more than oneself, or the feeling one gets when one contributes more than others. The cultivation of the mind and body is designed to change this ‘comparison-prone’ mentality (and realize that) one’s contributions vary with projects, periods of time and phases…” To bring about this “cultivation of mind”, Aiminger has detailed training programmes, run by Taoist experts working along with psychologists.

Other POEs also echo the importance given to the human resource. The boss of Bridge HR nurtures personal attachments with his employees, explaining, “If I can learn from him, I treat him as a teacher. If he performs his duties well, he is a friend. If he cannot contribute much to the company, I’ll treat him as a guest.” It appears that in China, whilst boss and worker may have large wealth differentials, their social distance is not as high as in the comparative Indian case, distinguishing such practices from old-fashioned paternalism.

Be warned, this book is not an easy read. The style resembles that of a management text, with clunky language and a lot of data. But the slog is worth it for the valuable insights that come through regarding Chinese culture, and of how entrepreneurs think, behave and make decisions. As two emerging superpowers, the Indian and Chinese economies must necessarily engage each other more fully, for their mutual benefit as well as that of the world. And when they do, Indian entrepreneurs must heed the advice of the sage Sun Zi: “If you know yourself, and if you know your opponent, you need not fear the results of a hundred battles.”

They could take the first step right here.

Ravi Bhoothalingam is a management consultant who travels frequently to China

---

MADE IN CHINA
SECRETS OF CHINA’S DYNAMIC ENTREPRENEURS

Winter Nie and Katherine Xin with Lily Zhang
John Wiley & Sons
210 pp