Business and Social Context Isn’t Important; It’s Everything

One of the most popular cliches in the west about China is that Chinese are generally good and reasonable people, but when it comes to nationalism, they are unreasonable. On the political level, national sovereignty is not negotiable, and when it comes to business, you need to realize that nationalism is a wildcard, and can throw a monkey-wrench into your best-laid plans. Put into this context, the 2008 Beijing Olympics is all about righting past wrongs, and showing that China is now an equal, maybe even a leader, in the world stage.

Like all bad cliches, this cliche contains a kernel of truth.

In my previous article, I mentioned why it’s so important for any business to be successful in China, decisions must be made locally by local management; it cannot be micromanaged from the US or anywhere else. Established business sectors such as finance, banking, retail, and fast moving consumer goods (FMCG), all understand this very basic rule of international business.

In the venture capital field in China, there has been a large influx of companies and partnerships which have opened offices and partnerships in Beijing and Shanghai. These companies understand that good investment decisions must, for the most part, be made in China where the local partners can understand the business environment, the competition and perform the due diligence to make the right decisions. Smart decisions cannot be made outside China.

And even that is not necessarily enough. Now more companies are going into the Chinese tier 2 and 3 cities and they are realizing that Beijing and Shanghai have more in common with New York, London or Tokyo than with other Chinese cities.

So why do so many US technology companies continue to try to second-guess and micromanage their China local management?

This is a mystery to me, and I continue to be befuddled by it. How can intelligent people continue to make and repeat over and over again mistakes which others have made before?

And then, when the Chinese local management complains that they are not empowered, sometimes they dismiss it as the Chinese “going nationalistic”. Never mind that the people questioning the Chinese management in the US do not speak, read or write Chinese; never mind that the people coming into China spend only a few days on the ground in China and think that they have China “all figured out”, yet they continue to do this over and over again.

Does this make sense? Any sense at all? And should there be any surprise that leading US companies including Yahoo!, eBay and AOL have failed in China?

And yet, these people control the budget and resource allocation for China. Should there be any surprise at all that US Internet companies have not been able to be successful in China?

What value do these people contribute to the success of the business in China? I can’t see any. Then when the company fails, it isn’t because headquarters slowed down the decision loop; it’s because of “poor performance by local management”!

They have set up Chinese local management to be the fall guy even before they started!

If this thinking were only confined to Internet companies and startups in China, it would be bad, but in the overall economic picture, it wouldn’t be that important.

The problem for the west is that it isn’t.

It has affected the west’s popularity in Africa because China offers aid without strings attached. In the mainstream media in the west, this is depicted as a cynical attempt by the Chinese to curry favor with regimes which behave badly.

But could there be more to it than meets the eye?

Could it be that the Africans don’t like to have someone dictate loan and development terms from Washington DC, London or Paris, and setting performance benchmarks for them without understanding the context of development in their own countries and region?

And could it be that the real reason for the popularity of the Chinese is that for better or for worse, they have gone local, setting up their own businesses and factories in Africa instead of trying to dictate terms from Beijing?

Definitely this is something worth pondering…

4 Responses to “Business and Social Context Isn’t Important; It’s Everything”

  1. […] Business and Social Context Isn’t Important; It’s Everything (China Vortex Blog) […]

  2. syz says:

    So why do so many US technology companies continue to try to second-guess and micromanage their China local management?

    Try: pure condescension. I hope my company is an exception, but somehow I doubt it, so please bear with the elaboration…

    Under “management by condescension,” the benighted Chinese employees, in management’s eyes, are hard workers and good people with a hopeless lack of understanding of modern business practices. Therefore, we bring in the enlightened management team from the home country (read: whoever we could coerce or cajole into a move to Beijing) to impart to them a small fraction of our vast business knowledge. Then every time our gross ignorance of the market, the local business practices, and the management of personnel leads to a conflagration, we smile kindly and say, “ah, they just don’t get it yet.”

    How did this condescension start?

    That’s a more interesting question. I don’t think it’s racism, in most cases, but just a complete lack of comprehension. It begins, of course, with a language barrier that prevents the foreign managers from communicating with most of the workforce. If you can’t communicate with your people, you can hardly know what their capabilities are and aren’t.

    Then when every bit of news comes filtered through one of the few English speakers on staff, it leads to a distorted view of reality at best. In the worst case, if one of them also happens to be the danwei idiot, then the communication disturbances become all-out anarchy. Not pretty.

    But I surely agree that when all is powerpointed and presented to the governing committee back at home, it can all be attributed to

    “poor performance by local management”

  3. LarsW says:

    You’re definitely right here, smart decisions can’t be made outside of China etc… But I don’t think handing your business over to a local team and then trusting them to take care of things will work either.

    I’ve seen that fail before, how quality and order erodes etc… China-Fade!

    You need to be here together with your local team, watch, learn and doing plenty of micromanagement. You’ll need one of your top people living here.

  4. “on-insurance-policy-claims-often-declined/ Thanks for that awesome posting. It saved MUCH time :-)