The China Vortex

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.

The Chinese government has done much to encourage the development of China’s west, particularly Sichuan province, which is the home to some 100 million people, making it larger in population than any single western European country, including Britain, France and even Germany.

From a business and consumers’ point of view, the region holds tremendous promise. Many large western companies, including Intel, Wal-Mart, MacDonald’s and KFC have all moved into the region in the hope of capturing some of the yuan which locals have to spend. From a consumer marketing point of view, and also from the manufacturing point of view, the region holds great promise.

However, this is still not enough. Compared to the east coast region’s of China, it is still far behind.

So what is holding the region behind in development?

In two words, it’s human talent. “Interesting places attract interesting people” is one of my favorite mantras. When I go to a place, I like to find interesting people, regardless of their profession, and listen to what they have to say. I look for different angles and insights from individuals which I cannot easily find elsewhere. Most of the time, I think of these people as very smart generalists.

My experience is that Shanghai and Beijing is full of interesting intelligent and very talented people, which is why I’m attracted to these two cities in China. They are evolving rapidly, which means that these cities have not yet congealed around certain professions in the way American or European cities, or even Hong Kong, have. They are full of surprises, and most of the time, these are pleasant surprises.

My theory is that these two cities draw the best Chinese talent away from the rest of China, leaving the other cities to struggle with the people they can convince to stay there, who usually are not as smart and talented. So, when Chinese or expats talk about Tier 1 cities (Beijing and Shanghai), they could just as easily be talking about quality human talent.

This creates a problem for western China: they have the consumers, and they can have good manufacturing up to the middle of the value-added chain, but they cannot catch up with Beijing and Shanghai at the top of the value chain.

Unless cities like Chongqing can figure out a way to keep the best human talent in Chongqing, the wealth and knowledge gap between the western part of China and the Tier 1 cities will continue to widen. Instead of climbing to the top, they will peak out around the middle and won’t make it into the ranks of world-class cities.

What the Chinese government, and most other governments, fail to understand is that it is not buildings, boulevards and museums which make cities world-class, it is very literally human talent. In spite of China’s huge population, I have only seen two cities, Beijing and Shanghai, which have the potential to make them world-class.

While some Chinese may take this as a slight, it’s worth remembering that the US, which has only 1/4 the population of China, but has a longer history as an economic superpower, has only three cities which can be classified as “Tier One”: New York, Los Angeles and Chicago.

There must be some undiscovered rule which makes this the case.

Ever since its publication, The Tipping Point, by Malcolm Gladwell, has captured the imagination of marketers and PR people all over the world. Basically, the book argues that ideas are spread by different groups of people, and that some have more influence than others in helping an idea to spread.

For marketers and PR people, the book basically argues that there is a formula for success; just feed your client’s idea or product into this ecosystem, and you can come up with a very predictable result. It’s almost like a software engineer’s dream: given a certain input, then a process, there is a predictable outcome. The marketer/PR agency can argue that the amount of money spent forms a direct correlation with the input, and if a project fails to take fire, it’s because the client didn’t spend enough money. As a result, the right connectors could not be influenced, and the project failed.

This is known as Influentials theory and forms the backbone of much marketing practice.

All clear and simple, right?

I have always had my doubts about it. For one thing, the model fails to take into account what is a good idea and what is a bad idea. And it fails to explain how people decide what is a good idea worth transmitting to one’s network, and what is a bad idea which should be immediately dismissed or ignored. If you were a Google engineer, how would you write an algorithm to describe how these very human and subjective individual judgements are made?

It seems to me that it is impossible to write an algorithm to describe them. What an engineer can do though, is plot how ideas are spread in a time when we are bombarded with more and more information, making our attention spans progressively shorter.

Wouldn’t there come a point when influence becomes almost random, when Influentials lose most of their influence? And doesn’t this coincide with the breakdown of the “mass market”, a concept which has collapsed with the rise of the social networking phenomenon and the long tail?

I had long suspected this, but I had never been able to prove the thesis. However, the results of some serious research by Duncan Watts supports this thesis. In this article published in Fast Company, his experiments suggest that the success of many fads has become, for all practical purposes, random. The article is an excellent read.

For one thing, I believe that The Tipping Point was written too long ago, and it described a world vastly different from ours in 2008. When it was published in 2002, the book described a time when people still read paper newspapers and books and before blogs. You may remember a term then called the “mass media”.

Now, ideas spread much faster, and within smaller groups which may appear random. It is also very likely that products/services/ideas will be served to much smaller groups of people.

One example is the gaming industry where the shelf life of titles has become progressively shorter, almost to the point where the marketing industry has trouble keeping up with the shorter time cycles. Hollywood movies have to prove their box-office success in their opening weekend in the US. These two industries have yet to adapt to lower production expense models which fit in with the lower shelf-life of their titles.

Basically, they need to downsize their costs.

If you boil it down to essentials, it means that you will have to market your ideas/products/services yourself, since you know your own audience best and understand how to pitch it to them. If they like what you have to say/sell, then they will become your connectors, and push it beyond your immediate circle, creating a breakout phenomenon.

In the end, the Internet empowers smart generalists who understand technology and keep the human touch in their marketing. Dumb messages may have short-time entertainment appeal, but they are unlikely to be profitable unless there is something behind them.

And marketing cannot buy credibility.

Until very recently, Chinese language qualifications were not considered a deal-breaker for senior positions in China. For the most part, US and European employers assumed that a person of Chinese extraction had some degree of fluency in Chinese, and could communicate with other Chinese in China.

This all changed when Goldman Sach’s proposed appointment for China co-head, Richard Ong, was disqualified from his proposed position because he failed to pass the language requirements for the position which were passed by the China Banking Regulatory Commission. Ong was a Malaysian Chinese who had been mostly educated in English in the west.

The test which Ong failed to pass was the HSK or Hanyu Shuiping Kaoshi. The test is given in three levels: basic, intermediate and advanced. The most basic level of Chinese language fluency is level 1; the most advanced is level 11. Those who reach level 11 Chinese language fluency are deemed to be able to work in a Chinese-language work environment. The HSK is the only government-sanctioned test given to non-Chinese whose results are recognized by the Chinese government.

Previously, the HSK was considered important only for those who were interested in the Chinese language for research and academic purposes; now, it is quickly evolving into an important job requirement qualification for those who want to work in China.

The test information and registration website includes full information about the process and tests, with test dates and places. Registration for the tests can be done online, as well as payment. All the candidate then needs to do is print out his form and photo, and present himself on the date of the test.

Test preparation books and materials are widely available in foreign-language bookstores in China, as well as in online stores.

As China becomes more important and influential on the international business scene, the need for senior executives who are fluent in written, spoken and in reading Chinese will become more important. Now, because of CBRC regulations, the sectors most affected are the sensitive financial sector; it is likely that as western companies become educated about the difference between being ethnically Chinese and fluent in Mandarin, they will ask for HSK test scores to get a handle on the Chinese language fluency of their staff and management, and prospective candidates. It is likely that it will soon evolve into a requirement for those in marketing in China, and in operations. Already, among executive search firms, there is a serious shortage of senior-level staff and management positions where candidates with Chinese-language fluency and overseas work experience are sought. For those who are serious about working in China, it would be wise to take the HSK and have their scores ready for their meeting with the human resources department.

Among China consultants, the HSK has already become a hot topic for discussion.

For those who are interested in learning more from others, and in sharing their knowledge, there is a discussion group for the HSK on Facebook.

One the things which has been interesting to me are visual maps of the Internet, which show the main websites, and usually, how much traffic they attract. One of the leaders in measuring Internet usage all over the world, and in Asia-Pacific, is Comscore, which recently prepared a report on Asia-Pacific Internet usage.

Today, we are swamped with data and different sets of variables, so much so that most executives prefer to have their data presented in some graphic form. One great pioneer in this field is Edward R. Tufte, whose book The Visual Display of Quantitative Information is considered a classic for all communicators who need to provide snapshots of large data sets in a simple and clear fashion so that business decisions can be made quickly and efficiently.

iA Japan has recently released a map of the Internet presented as a variation of the Tokyo subway map. Broadly speaking, larger sites are larger, while sites with less traffic are smaller.

Now, I find myself spending more time thinking about how to visualize human behavior. Advertising and marketing have everything to do with understanding group behavior and psychology. While there have been books written about it, there has been almost no research done about how to visualize it. I find myself most interested in how groups of people move from one interest and website/s to another.

In the map, for example, I can see that among Chinese sites, Sina, Sohu, Netease and QQ are big, but I don’t know how people move to and from these sites, and to other sites. Static maps are about nouns; I’m also interested in the verbs and the adverbs. And not on a static basis as a snapshot, but in a live, ongoing, continuously evolving and changing basis in real-time.

How would online user behavior be visualized? One thing for sure: no static image would capture it; it would have to be like a video, constantly updated in real-time. And what insights would it give to marketers, advertisers, psychologists, anthropologists and linguists? My guess is that it would show that online user group behavior really has a lot in common with members of the animal kingdom which travel together in large groups, such as fish and starlings.

How about you? How do you think this data should be represented?

Since Google just announced a new university search API for research, maybe this could be a project it could be applied to.