Understanding Trial Spots

If there is one thing which most western companies coming into China miss out on is the idea of “trial spots”, or as they are called in Chinese ่ฏ•็‚นใ€‚

So what is it? Basically, it’s a city, place, province or region which is used to try out something experimental which has not been tried before. When China first opened up, Shenzhen was a trial spot for opening up the economy to foreign manufacturing investment. When the experiment succeeded, it was pushed out to the other parts of China. Shanghai and Beijing were opened as tier one cities to foreign companies and employers, mostly in the service sector. When these experiments worked, the opening up gradually started. In most cases, the trial spots were selected by the central, provincial or municipal governments.

Now, there is another little secret. Large SOEs (state-owned enterprises) also often have their own trial spots. Most of the time, these are used to put some of the rising senior-level managers in to try new management practices. They are usually given a city, and a long leash, and are encouraged to try new ways of management. Often these managers are people who have made it to a certain level in a state-owned enterprise, but will not or cannot rise higher because they are somewhat non-conformist, and shall we say, less interested in politics. (Remember that in SOEs, the party also has a say in the selection of candidates for senior positions.)

Frequently, the Chinese way of handling these non-conformists is to give them a “trial spot” where they can experiment in a city or provincial division on their own. If something goes wrong with their experiment, then the damage is limited to their immediate market. If, on the other hand, the experiment was successful and includes practices which can be used on a larger scale, then that person may be promoted to a higher position with greater responsibility. This is how the current leadership of China has been groomed, just to cite an example.

The interesting thing is that many western companies, even consultants, are completely unaware of these practices. They look at their choice of investment areas in western terms, which usually means that which is clear, and out there, in the open.

They don’t study the people.

Instead, they should ask where the different “trial spots” are, and the backgrounds of the people they are dealing with. The right questions to ask for SOEs are:

  • “How did this person get to this position?”
  • “What is he trying to do?”
  • “How is he different?”
  • “What do his employees think of him?”
  • “What are his goals and his definition of success?”

If it sounds like questions an intelligence agency would ask when examining the new leadership of a country, then it does because it is just like that. I call this “due diligence with Chinese characteristics”.

And how do you get this information? I find the best way is walk in and ask (In Chinese, of course. Speak English and you only get the official line.)

For the most part, you will never find these people in Beijing or Shanghai unless they have been very successful. These are two highly conformist politically-charged cities, and the only way they make it to these cities is if they are in very senior positions, and their views have been vindicated.

Generally speaking, Chinese, even including the party, are more tolerant of non-conformists. Just don’t look for them in Beijing and Shanghai. Deng Xiaoping, the architect of China’s reforms, was for many years considered a non-conformist and was punished repeatedly for his views. Eventually, his policies became the mainstream.

So, how will the recent economic problems affect things? Basically, we are going through the collapse of an old world order, and nothing new to replace it has come up yet. The Chinese government, the party and Chinese SOEs will be looking for answers on what comes next to restore order, growth and stability. After all, this is what Chinese social stability depends on.

For Chinese government and party officials, it will be a good time to be something of a maverick. But these mavericks will only survive and prosper if they can come up with the right answers to some very tough questions.

3 Responses to “Understanding Trial Spots”

  1. Laughingcow says:

    Great article! If we talk about the education industry, where would you say the trial spot is now?

  2. Elliott Ng says:

    Fascinating. This gives me more insight into the need to shop around when locating one’s operation in China, and that you must have a compelling reason to locate in Beijing and Shanghai if you are a foreign company. If you can’t come up with a compelling reason, you probably shouldn’t be there and should be shopping around furiously for the right second tier city.

    So where are the mavericky equivalents of Sarah Palin and John McCain in China? :)

    But seriously, what are the best locations for software/BPO/KPO outsourcing businesses? Hangzhou, Xian, Chengdu, Chongqing, Dalian, Wuxi, Nanjing, Wuhan? Where are the “trial spots”? And what is to prevent a 2nd tier city from becoming like a 1st tier city in 5 years?

    Elliott Ngs last blog post..2 New Shanghai Metro Observations: Patience & Top Gear

  3. […] another article, I talked about how the Chinese government liked to try new policies on a trial basis. For Chongqing and Bo Xilai, it is an ideal place to try and experiment to do new things in new […]