Visionaries

INSIDER: How did you get to Asia before most of the rest of us? Did your upbringing in Asia turn out to be a help or a hindrance?

From 1994-2000, I opened an office and ran operations for RR Donnelley (RRD) in China (the PRC) as the VP of Asia Operations. I can see that the economy is very different now. The “train” is traveling so much faster than when I was there, and I only left China six years ago. People are much more open to all of this change, as well. However, there are still a lot of communication obstacles – in terms of thinking, not so much in cultural preferences. Yet these differences affect everyday behavior and show up frequently in one’s social relationships.

In addition to my time in the PRC, I was based in South Korea and Japan for Lotus. I also lived in Taiwan for two years. I grew up in Singapore, so my own mindset is more British and European than it is 100% Chinese. I found that at times when I was based in China, especially during my first three years, that I just couldn’t communicate, even though my face looked Chinese. For me, it was like talking to aliens sometimes. It was because the responses didn’t fall into the right range of possibilities to fit into my categories of A, B, C. People were always presenting me with D! I was totally fluent in Mandarin, but it didn’t matter.

The lesson that I finally learned from all of this? You must change. I finally changed. Maybe it was harder for me than for other expatriates because I originally believed that I was like the local business people.

INSIDER: Where do you prefer to operate as a businessperson?

It depends on my objective. If I want to generate a lot of money, then it’s China. If my goal is a well-run and stable business, then it’s the U.S. due to its higher levels of transparency and business ethics. If my goal is outsourcing, then India is the other hot place.

Speaking of which, I have some advice for your readers. Don’t miss the two trains of India and China!

INSIDER: What is your current venture?

I put together a team of people and, together, we have run Real Idea for the past ten years. We have our fingers in lots of pies. One of them is our Chinese operation for globalization, which includes huge translation, testing and development teams. We also manage offshore projects from Japan, Europe and the U.S.

INSIDER: What are companies doing right when they enter China that they weren’t doing 5 years ago?

Well, let’s start with the mistakes that companies are still making – and they apply to small and big companies alike. Many of your readers are aware of the fact that even large companies continue to “learn.”

The first problem is the total lack of investment by these companies in relation management in China. When you enter a new market, you generally want to sell a product/service or you want to take advantage of the rich human resources to manufacture and then to resell within/outside this new market. In order to be successful – in any new market, not just China – you need to have a very good understanding of how to build relationships in that market.

Let’s take the sales process as just one example. In the case of U.S. customers, it is enough simply to show them the benefits. You go straight to the point and emphasize the three or five advantages of your product/service. This is because U.S. customers are always looking at their watches, i.e., they don’t want to have to spend unnecessary time figuring out if your product/service will actually solve their problem.

Chinese customers, on the other hand, need to get used to your voice, your face, your manner. You can get straight to the point with them, but they will not buy from you, no matter how neatly and cost-effectively your product/service solves their problem.

Never, ever forget that, at the end of the day, it is your company, your investment and your relationship.

The key is to build the relationship before you try to sell anything to a Chinese customer. This is especially true for huge banking/government accounts. You always need very, very good “relationship antenna,” based on cultural sensitivity. There are numerous local Chinese consulting companies promising to help you do this, but at the end of the day, it is your company, your investment and your relationship. Never, ever forget that.

When I worked for RRD in Beijing, we had our office rented, all of our equipment rented, and we even had customers ready. However, we discovered that we couldn’t operate because we didn’t have the proper local business license, and worse yet, we weren’t sure how to get one. To solve the problem, we engaged Arthur Andersen, who told us that it would take 2-1/2 months to obtain the necessary license. Now, remember that we were renting 1000 square feet of office space at USD 10,000 per month. We decided to solve our problem in a different way – we found a local business consulting company and had our license within a week.

The second challenge for foreign business people in China is that they forget to factor in cultural differences at critical points – and depending on their background and experience, they may even turn out to be rather clueless in this area. They can learn all of the Mandarin they want, but that doesn’t mean that they will be able to understand the cultural nuances at key junctures during negotiations, for example, that will determine their success. Why? Because they have been brought up as Westerners.

It would be unthinkable in U.S. culture to share Cajun lobster with a business colleague.

There truly is a Chinese Way. In the U.S., when we walk into a restaurant and order food, we generally don’t share what’s on our plates if we are eating with business colleagues. It would be unthinkable to share Cajun lobster – notwithstanding a clean utensil – with a business colleague! But over a Chinese business lunch/dinner, we will share the dishes. Nowadays, we may dedicate a clean spoon for each dish, or we may invite each person to “dig in” with clean chopsticks. And woe is you if you choose not to share your food with a Chinese bureaucrat. Why? Because the minute you do that, you have drawn a very distinct boundary that causes the bureaucrat to become very defensive. And, worse yet, at a very, very fundamental level – what is more fundamental than food?! This one small act then permeates the entire relationship. Yes, saliva is the key in some cases to making that big sale!

I remember one localization deal from for USD 300,000 that only took my buying two to three business lunches of shared dishes. But, that didn’t mean that there weren’t other times during the year when I was required to show my appreciation for the relationship in the form of appropriate gifts, e.g., Godiva chocolates at Christmas, along with the right presents for both the Spring and Moon Cake Festivals. You must also give the gift in a certain way in person – it’s not enough to simply have it delivered. In their hearts, the people with whom you do business in China are expecting you to know how to appreciate the relationship. This is often very, very hard for outsiders to understand without actual guidance from someone on the inside. You may even find that “appreciating the relationship” at the appropriate level means entertaining your business colleagues and partners in your home. Very intimate, but entirely appropriate – and expected – at times.

Cisco was once trying to sell to the Chinese government, and its price was actually less than the local price for a superior quality product that was much better in reliability. However, the government still purchased the lower-quality routers from the local supplier – and not only because it was a local company, and not only because of bribes paid. Part of the reason was the long-term, intimate relationship that they already shared together. Each party was already comfortable with one another’s voices, faces and manners. Outsiders assumed that Cisco lost the deal to bribery or pricing, but that doesn’t really tell the whole story.

Another example – taboo subjects and taboo times, that are based on respect, but which differ between cultures. I have many true friends who work for Sun and Microsoft, but I would never call them up after business hours to discuss business – only between 9:30 AM and 5:00 PM. All cultures have different limits in their business practices. For example, you can have a very open and frank salary discussion with a Chinese person, but not with an American.

The third big mistake that companies continue to make when entering China is their failure to recruit good people who know the local market. Even nowadays, companies will tend to put their own people in China. At the beginning, RRD trusted me – with a cultural mix from the U.S., Singapore and Taiwan – not a local Chinese manager, to open their operation in China. However, it never fails, that the local company needs a leader who they can trust, who will run the local operation the “Chinese Way.”

Americans will hardly ever give the VP position to a local Chinese.

The typical pattern, though, is for a company to go as long as two to three years with expatriate management. Then years three and four are “hiccup years” during which the management is localized, and both sides must learn to work together. Generally, the first two years are not too successful. And Americans will hardly ever give the VP position, for example, to a local Chinese. In my experience, I have found the Europeans to be a bit more open and relaxed in this regard.

In the case of Real Idea, we were 100% localized in terms of our management team in China by our second year of business. Your turnover rate will always be lower because local managers know how to manage their own people. You must empower and trust people with decisionmaking power when you hire them. If you don’t, it never works out.

One example is Microsoft. It continues to change its Country Manager in China. Fundamentally, this is due to a conflict of opinion on how to develop the market (Seattle vs. China), and they are always in conflict. Rather than recruiting local talent to really develop the market, Microsoft in the U.S. is always looking for someone who can communicate with the management in Seattle. They are not hiring the right people and trusting them.

INSIDER: Is the argument valid that states that it is very difficult to find local management talent?

NO! There must be at least 1.3 billion people in China right now, with 10-12 million in Beijing and 16 million in Shanghai. How could there be no one?

The HR market is booming in China, with so much foreign investment still pouring in. Of course the demand for good managers is very high. It has created a DOT.com scenario for job-hunting. If you fail to react according to the market, and if you continue to use the rules that only apply back in your own country, you will be in trouble. All of your employees will move to another company over time – and sooner rather than later.

At Real Idea, we provide salary raises twice a year, and sometimes three times a year for really good employees. We also have half-yearly profit sharing. We have found that we can keep our very good people this way. If you don’t adapt, all you are doing is training your competitor’s staff because your employees will learn the first year and then leave (well-trained!) for a competitor.

INSIDER: What about bribery? Is it still an important issue?

Definitely. This is the fourth problematic area for foreign enterprises – when they fail to consider the hidden or real costs for their Chinese operations. They tend to budget everything on the table and only what can be seen. Under these rules, bribery cannot be taken into account. Money still must actually change hands to get certain things done in China. Of course, it’s very difficult to reflect this on your balance sheet, especially if you are a public company.

“We’re not doubting you, but we do need that receipt for the 3 Rado watches!”

Remember my business license problem with RRD? Well, it turned out that the local company only charged us about 1/5 of what Arthur Andersen’s fee would have been, and we actually got what we needed. But how did we do it? I called my boss, who was a Senior VP, and told him to prepare three Rado watches. Of course, he protested greatly. But then I pointed out to him the difference between USD 3,000 and USD 30,000. I was given permission to buy the watches in Hong Kong and to deliver them personally. I handed them over in three different sessions – as “used watches.” My wrist is too small. Will you help me give it to someone else? Your brother, perhaps? Both of us were off the hook in terms of “saving face.”

I do love the Americans, though – my boss eventually called to relay the message that the CFO was asking for a receipt to prove that I had actually handed over the watches as I had said I would! “We’re not doubting you, but we do need that receipt!”

Of course, I was offended – enough to consider resigning at that point. How could someone who made over USD 200,000 a year be requesting a receipt for USD 3,000 from a person who made over USD 100,000 a year? RRD spent way more than USD 30,000 in executive effort by the time the issue was resolved. My advice? CLOSE YOUR EYES, act macro and go – don’t be so micro!

The fifth challenge is, believe it or not, that most products are still not very well localized for the Chinese market! The Japanese market was very hot before the Chinese market took over. It’s the same principle. One example is as close as your computer keyboard. Japan has one, but no one has ever really thought through the keyboard for use in China.

INSIDER: How would you rate the Chinese on their international marketing efforts so far?

Probably a “B” for effort and a “C” for results.

There is lots of merger and acquisition activity going on. This will continue for quite awhile, but the road will be long and bumpy.

In the same way that U.S. companies don’t manage cultural differences well, neither do the Chinese. There are not very many Chinese who are well-traveled – they have just started to travel abroad within the last five years, and this is still only a very small percentage of the people. You can respect people more and communicate better once you have traveled more. It will be very interesting, for example, to see just how well Legend will be able to manage a bunch of Americans who are used to IBM.

Of course, this is a huge opportunity for those Chinese who have studied/worked in the U.S. They will function as the “middleware” between the two groups.

Chinese managers manage people at a very micro level. Everyone must punch their cards and be at their desk. You can leave between 5:00 and 6:00 PM, but not before your boss leaves. But in America, we operate under unwritten agreements at the professional level, and we are not that strict in terms of calculating the time. You come in around 9 AM and leave at 6 PM. Maybe you will come in one day between 10 and 11, but you will also work that day until 10 PM, even if some of that is at home. There are times when one of my engineers won’t even come in because he has to go on-site for a customer, and it’s closer for him to go straight home. As long as employees deliver, a manager doesn’t need to know where they are every minute of the day.

Chinese companies also make the mistake of exporting their pricing/marketing strategies when, in reality, their export markets require completely different models. Marketing spending levels are much lower than in the U.S. When a Chinese manager in China sees that a tradeshow costs less than USD 20,000, yet the product marketing budget is set at USD 2 million, he immediately jumps to the conclusion that there must be bribery going on! Again, some of this can be attributed to a lack of travel. This all goes back to the need for globalizing your business processes and globalizing your management.

Currently, we sell translation services into the Chinese market, but with completely different pricing from our other markets. The exact same service is priced very differently because Chinese consumer behavior is so different – we have no choice. Chinese customers cannot yet appreciate the extra value that we add. They can’t see the whole picture yet, so they can only appreciate the unit value.

In general, Chinese management doesn’t put much effort into packaging or polishing the image of their companies. This is quite different than Japanese packaging, which is beautiful, no matter what the contents. Part of this is due to the historical lack of resources in China. However, it has a big impact when it is applied to customer service and tech support, since these affect one’s brand. The Chinese tend to consider the product to be yours, not theirs, at the point that you require customer service and tech support! There will be an adjustment period as the market forces their attitude to change.

Chinese products are not well-localized either, due to a lack of knowledge. Managers have also been unwilling to spend the money to learn. The conversation goes something like this:

If you want to sell your product successfully in the U.S., you will need to change the box. It looks old, and the colors are very dull.

But, Victor, if I do that, it will increase my cost of goods, and I will have to redesign the whole box.

OR

You need to restructure your pricing to be successful in the U.S. and Japan.

Oh, but then I will have to employ a consultant to figure this out!

The Chinese will succeed in 5-10 years, but there will be lots of hiccups along the way. There is definitely a niche market to provide consulting services in this area.

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Victor Tan has an impressive record of success and a solid reputation for effective leadership. Prior to co-founding Real Idea, Tan served as General Manager for Asia Operations for LioNBridge. He also founded and was President of R. R. Donnelley Global Language Service Asia (Stream International). Prior to Donnelly, Tan was Development Manager for Lotus Asia Pacific.