China is a nation of entrepreneurs, and according to statistics, has 85 million businesses compared to the US’s 25 million. Considering that China has about four times the population of the US, the proportion is about right. These numbers reveal that China is in fact, not a socialist nation, but is instead one which has a very capitalist heart. Or as the Chinese government would say, has “market characteristics”.
There are many Chinese university graduates who when choosing a job, prefer to go to a western company over a Chinese company. For many, American companies are the most preferred. Why is this?
For many of them, it is because that they will get good training, learn management, and work within large organizations about how to get a job done. They get a chance to work with people from many different cultures and countries.
These are significant advantages which most Chinese companies, which have not yet gone global, are not yet able to offer. But I believe that there is another perhaps more important reason.
That is, they know that they will be judged more on performance and merit than on personal relationships with the founder and/or CEO. When it comes to relationships, Chinese founders and CEOs are still very reluctant to trust people outside their own inner circle, and it is very difficult, if not impossible, for anyone outside to make it into this inner circle, no matter how good they are. I’m convinced that this attitude has put a natural ceiling or limit on how successful Chinese companies will be in globalizing. When people discover that no matter how smart they are or how hard they work, that they will not make it into the inner circle, they will either move to a company where they know that they are respected, or they will start their own company.
In contrast, Americans and American companies have a different approach. They put value on developing management talent, especially local management talent in a major market like China. They identify rising stars and put them on a management training track soon. Most importantly, they promote them without regard to who they know or are related to.
Most Chinese companies do not do this. This gives American companies human talent scaleability when going global which Chinese companies do not have. Successful American and western companies which have gone global tend to be meritocracies, while Chinese companies are still stuck at the plutocracy stage.
In his book Managing the Dragon, Jack Perkowski stresses how his company ASIMCO is a Chinese company. Technically and legally it is. The important thing is that he was pragmatic about bringing in the best people in their fields as senior and executive management, without regard to who they were related to. This is a very American characteristic, and in China, it works. Ironically, if there is an outsider advantage in China, this is it.
The Chinese government and the management of most Chinese companies have figured this out, but have not been able to apply this lesson to their own organizations yet. This is one of those things which cannot be solved by a government order or administrative guidelines, which the Chinese government likes to use to solve complex problems.
If Chinese companies successfully resolve this problem, there will be no limit to their growth.