Archive for Chinese CEO

It’s a Culture Thing.

Posted in Business Culture in China, Cultural Observations. with tags , , , , on December 16, 2013 by Ben Brown

One of my colleagues awhile back noted that the biggest factor differentiating China and North America is immigration. My Chinese friends will often tell me they live in a multicultural society due to all the minority groups that live scattered across the country.

While there are sometimes large cultural differences between minority groups in China, I disagree that this puts my Chinese friends in a similar situation to the US or Canada, where over 90% of the people hail from ancestry tracing back to other parts of the world.

In order to have sanity in the US, we need to work hard on a daily basis to eliminate cultural favoritism in our laws and our society. American culture is in itself an oxymoron of sorts. Almost all of our culture and heritage hail from other parts of the world. New York Style pizza vs. Chicago Deep Dish? These both originate from Italy if you go back far enough. And going back doesn’t take long. Just three centuries ago there wasn’t much in America once you got a few hundred miles west of the Atlantic.

China has spent 5000 years developing an intricate, complex culture filled with minute details that everyone is expected to know. It’s much less forgiving than the US, where for the most part the culture is an amalgamation of every other country. Our general culture in business and politics is focused for the most part on eliminating cultural norms. When we negotiate, we do it on the table with paper and pen. Hash out the terms, do a SWOT analysis, discuss synergies and potential issues. Talk about a price for services rendered, have a bunch of lawyers look at the agreement terms and draw up a contract. We’re blunt and impersonal.

In China it’s much more important to understand the cultural complexities that surround you. The culture is such that I can lose face in a business meeting by simply failing to respond appropriately to a comment. A perfect example happened in Toronto a few months back. I was with my boss at a meeting between him and the head of a Chinese bank branch in Toronto. As we were heading down to the lobby in the elevator, I complemented the branch manager on having a very nice office. He immediately replied that the walls were too bare, the office too cold and undecorated. I told him it was unnecessary to have lots of decor in an office that had such a great view of downtown Toronto from every window. Everybody laughed and complemented me on my grasp of the culture and language. But had I said nothing, I would have left the bank branch manager with a sour taste in his mouth because I complemented him on his office, then he downplayed the complement by stating one of the office’s major weaknesses. Had I not responded with a reason for my initial complement that countered his self-criticism, my boss or somebody else would have either had to step in with something nice to say or they would have to apologize for the foreigner who didn’t understand.

This type of back-and-forth etiquette does not exist in the North American work place, unless you happen to be doing business with a Chinese owner who still adheres to those norms. You can get through these cultural differences and get things done, but it’s much harder to develop trust.

I’ve been studying this culture for two decades and spent around four years completely immersed in it, rarely speaking anything but Chinese. I am still learning. I will be for the rest of my life. But it’s a fun, interesting, sometimes horribly embarrassing challenge that I constantly learn from. And I am not just learning about Chinese culture. I’m learning about myself. I’m learning how to look at problems from multiple perspectives. I’m learning to understand what the real challenges are in a business transaction rather than what my own cultural background tells me.

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The Meeting Dynamic.

Posted in Business Culture in China, Cultural Observations., Doing Business with tags , , , , , , , on December 13, 2013 by Ben Brown

There is an interesting phenomenon in Chinese business meetings that always ruffles the feathers of my background in operations management, specifically as it relates to efficiency.

China has more of one thing than anywhere else in the world: People. It has always been a large country.

China likes to show off its people. Over the years I’ve been party to many meetings in China.

In the West, a high-level business meeting between two parties will include, generally, people who need to be there. Maybe there will be one person who is there to learn, but everyone else has some sort of role.

Chinese meetings are different. There will often be five, six or more people representing each company at a meeting where really, only three or at most four people will do any talking. Some of the others at the meeting may be there to advise the leaders afterwards. Generally though, there are a lot of people there who are really just ‘filler’. Sometimes I’ve gotten to be there as an adviser. Occasionally I’ve been one of the guys doing the talking. Most of the time, I take notes nobody will ever ask me about and discreetly look up the occasional Chinese word or phrase I didn’t understand. It’s a good opportunity to write down tasks I might need to take care of by the end of the day.

It’s important to show a lot of people at these meetings to either display that you are powerful, or to show respect to a government organization that might be unhappy to be greeted with only two or three people representing the business.

It’s just another example of how many cultural differences there are between doing business here and conducting the same transaction in the west.

In North America specifically, we strive to eliminate cultural aspects of doing business and make everything about the agreement on the table. People can say any crazy thing they want in a meeting, as long as it ends with a clearly-stated contract that delineates every last item of business loophole free.

In China, I get many compliments on how much I’ve learned about Chinese culture and how well I handle situations. Still, I make about two cultural mistakes during a good week. I’m usually given a bit of leeway because I’m a foreigner, which I appreciate greatly. This culture is very complex. I’ve seen locals that make more mistakes than I do. Sea Turtles returning from ten or more years abroad bring a refreshing sense of openness to a lot of meetings, but many also find themselves stumbling to re-balance after being gone for so long. There are simply a lot of rules to remember.

Awhile back, at a previous company, I had the privilege of attending a meeting between a Chinese company and an American company. They had formed a joint venture. The Americans were visiting Chongqing. One of them noted to me that when the Chinese had come to the US, they brought six people over. The Americans on this trip consisted of the Managing Director and the project manager.

The Chinese side had 10 people.

But the real difference was the power dynamic. On the Chinese side, the guy that did 99% of the talking was the leader. Everyone else sat quietly for the most part. The organization on a whole was obviously very top-down. On the US side, there were lots of side-bar discussions going on between the two lonely guys sitting there and they would interrupt each other as they tried to clarify points to the Chinese counterparts.

This reflects a difference not just in presentation but in cultural approach, collective vs. individual decision-making processes, and separation of authority. I’m an American. Personally, I prefer the collective approach to doing business. I like to be able to make my input in meetings. I like to speak up without being asked to. It takes a great deal of restraint for me to remain silent as complicated discussions take place. In fact, I’ve made it a habit since arriving in China to make sure I’ve saved up enough free cash from any new job so that I can afford six months of unemployment before I start saying much in meetings. This usually also forces me to get established somewhere so that my comments don’t come off as abrasive. It also takes a lot of effort to not be overbearing. As Americans, one of our favorite pastimes in a business environment is to tell people what we think. Especially if we completely disagree with an approach being taken by leadership. In China, it’s not possible to raise your voice and express opinions without being first asked to do so. It’s even more inappropriate to say something contradictory to the leadership.

The irony, of course, is that western businessmen coming to China to conduct business may think everything is going just fine at first. This is because it’s also generally not considered appropriate to tell anyone that they’re stepping on cultural toes.

A few years ago when I was living in the States, I regularly heard businessmen coming back from some of their first trips to China say “I don’t know why everyone talks about the culture being so different over there. I went over and had no problems. Business is business. Just get the deal done and you’ll be fine.”

When I would bump into them again a year later, the story would be different. It would be a lot of “My Chinese counterpart is destroying our business because he’s not listening to me, he’s not doing what I told him to do, blah blah…” If I’m feeling like having an argument, I tell the person that maybe, just maybe, they should learn to communicate a little better from a culturally-competent perspective so that they can actually move forward instead of simply barking orders and complaining that everything is being done improperly. Most of the time, though, I wait for the other shoe to drop. I ask them how their last trip to China was aside from the meeting. Their responses are usually negative. They complain about a lot of things being different. Basically, they’re starting to notice that the culture is totally different from their own, and they’re trying to change things.

That’s absolutely impossible.

The only thing that can be changed is you. Changing the way you deliver the message can make the message itself more digestible to the guy sitting across form you with nine silent subordinates. When I’m in China, I have the benefit of seeing the differences between the culture I’m in and the culture I came from. I’ve lived here long enough to have my eyes opened a bit. It’s my responsibility to see those differences and adapt my approach to everything so that it fits into my counterpart’s cultural comfort zone.

Over leveraging in China.

Posted in Uncategorized with tags , , , , on December 7, 2013 by Ben Brown

This was one of those “Ah-Ha” moments for me.

Many of you who do business in or with China ask the same question on a weekly or even daily basis of your Chinese counterpart: “Why, WHY are they doing THIS?!”

Sometimes the moves a Chinese company will make may strike you as completely without sense. I can now attest that for the great majority, there is a very clear line of reasoning. I can further attest that it is usually pretty solid reasoning.

The difference lies in the structure of the country’s rules of the game.

In the US, if we want to start a business we start it. Next week I plan to register the first of three companies I’m starting. One will export products to China. One will import products to the US, and a third will offer consulting and management services, on the ground in China. The grand total cost of opening all three of these businesses will be less than $1K USD.

In China, in many cases, you need to show $100K RMB in liquid assets before you are allowed to register just one business. That’s around $18,000 USD. It’s not needed for anything, you just have to have it in savings. Other companies (it depends on what you’re hoping to trade or sell) require a much higher input. In some cases over $100K USD in savings just to get a business license.

That’s just to give you an idea of how much more difficult it is to start and operate a business in China, right from the start.

I noticed over the past year of working for a Chinese company that many, many Chinese businesses are heavily over leveraged. Why? Is it because they can?

No. Not really.

Most businesses with the goal of long-term growth and survival will not choose to over encumber themselves with choking levels of debt. In the west we often talk about Chinese companies borrowing money that they either fail to pay back or pay back extremely late. This does happen with a lot of SOEs.

Private companies are different.

First of all, they are not party-controlled or nearly as heavily party-influenced as SOEs. They don’t have a CEO who also holds a government position of authority that can just call up the head of an SOE bank and resolve issues. Their company pays lip service to the idea of bringing technology into the country and spreading it around, but they are still in business to make money rather than to support the motherland.

Secondly, they still have to put up corporate assets as collateral, and they have to find, usually, a local government entity to guarantee their loan to the bank. That local government entity will want the assets as collateral.

Then, after the purchase has been made, things have to go exactly as planned. Usually the plan was drawn up with the most optimistic scenario in mind. In most cases, those scenarios were never meet-able.

So the local entity will start conducting audits and demanding their money back. This often happens mere months after the transaction has closed.

The private company, meanwhile, has been going to another small government entity in the neighboring town (or eventually in a neighboring province) and offering different assets as collateral. They can then try to use their new pull with a slightly higher-ranking government official to coerce the guarantor of the earlier transaction into sitting tight while the company struggles to turn a profit. If they need to make some payments, some of the loan money from the second transaction can be used to satisfy the parties involved in the first.

The result is a company that has expanded rapidly through lending aimed at reaching profit margins that were probably never attainable. The hope is that eventually they will start turning a profit and become competitive enough to expand further, creating JV agreements with foreign entities and possibly even buying western companies.

Once a private firm has gone international, it’s a lot tougher for some local government guarantor to try to tear them down by demanding assets as collateral for failed investments at a lower level. The company could very well still not be profitable enough to pay off all of its debt obligations.

I regularly see things I don’t understand in my current working environment. To my amazement, I’ve found that if I dig long enough and find the right person, and convince them to share, I get an answer that makes some level of sense. Of course, the biggest question is why get into private business in China in the first place. People here are brave beyond belief, and risk aversion is nearly nonexistent by western standards.

What does that last sentence mean for the future? It means look out western markets, because if China ever creates a safer, easier environment in which private citizens can freely open their own entrepreneurial endeavors, we’re going to be competing with people willing to risk it all on much lower odds than we would.

The Big Emperor Complex.

Posted in Business Culture in China, Doing Business with tags , , , , on December 5, 2013 by Ben Brown

Most people who have followed China’s social and economic rocket-like progression from a third-world, planned economy in 1979 to what it is today have heard of the Little Emperors. These are the the sole children of the one child policy era. They have two sets of doting grandparents and one set of parents who all want the best for their kids. These elders bring new meaning to the American phrase “Helicopter Parent”.

But I’m not writing today about the little emperors. I’m writing about the big ones.

China’s businesses are a complex web of management hierarchy that can (and in my case have) made a foreign professional dizzy. Like in the rest of the culture, there are nuanced rules that go back thousands of years.

I now work in a medium-sized, privately-owned Chinese company. I’ve been here for little over a year. I have spent this time working as hard as they will let me, but also observing closely and carefully what is going on around me. I’ve taken the 19 years of Chinese cultural and historical study under my belt and applied it, along with a master’s in international business and 12 years of western corporate experience, to what I see here. I’ve soaked in events from the perspective of a foreign observer plunked down in the middle of business meetings where, in most cases, I am able to convince people through my language and actions that they can relax and speak freely amongst one another as if there was no foreigner sitting in the room.

What I’ve discovered has astounded me. I have uncovered depth, color, strategy and politics that probably only scratch the surface of what’s really going on. There is a lot to cover. It will take months of postings for me to get everything from the past year online for your perusal. During that time I will learn more. And I will attempt to share everything I feel is pertinent.

The Big Emperors are the CEOs. The companies they own and manage could be any size, but they are the biggest fish in their pond, lake or ocean, and they expect, as social mores here dictate, to be treated as royalty.

In looking at the development of Chinese business culture and structure, one cannot simply look at the last 34 years since the doors opened. That’s not what corporate culture in China is predicated upon. It bears striking resemblance to the legacy of Chairman Mao, who, for all of his anti-Imperialist dogma, embraced and worked ardently to build a cult of personality similar to that of the emperors who preceded him.

The top dogs in China’s businesses are treated like Little Emperors. But since that title is already taken by the CEO’s only child, we have to give him (in most cases it’s a Him and not a Her) the title of “Big Emperor”.

Our company’s big emperor rules the roost with heavily consolidated power, a personal driver, two secretaries, and a gang of employees following him around wherever he goes. So far that sounds a lot like any company on Wall Street. But the difference is in level of reverence. The Emperor in China’s history was top dog under heaven, and his right to rule was bestowed upon him by celestial endowment. CEOs in China who have managed to get through the political morass and succeeded in carving out their piece of the pie feel it is their right to be in charge. They treat their employees very much like property, berating them when the mood strikes, and paying them complements as they please. We are called at any time of the day or night and told where to be, sometimes within minutes of answering the phone. If we are out of town on a Sunday and we hold lower positions close to the CEO, we could be chastised or even fined for not first asking permission to be out of town.

We are, after all, employed at the mercy of our ruler.

I am not writing any of this sarcastically or in any way negatively. This is me being objective as possible in my very subjective analysis of one company in China. My friends, coworkers and wife weigh in regularly on my comments about what I’ve learned working here, so I know I work at a relatively conservative company by Chinese standards. But they’ve also told me that when a Chinese executive gets to the top of his or her own company, he or she sees authoritarian-style rule, power consolidation, and worship from subordinates as part of the executive package. Considering the absolute cut-throat nature of business in China, there are underlying reasons behind some of this. A CEO has to be in charge and hold a lot of power close out of the very real danger they might lose it to someone else.

But it has caused me to re-think everything I know about culture in China, and contradicted a lot of what I learned in graduate school.

My CEO loves golf. Therefore the company has a hand-selected team of employees comprised of quick risers, executive management and Chinese-speaking foreigners (in this case….only me) who are required to attend the driving range in their spare time and practice golfing for free. Since I enjoyed golfing in the States I begged for the chance to join the team.

My first trip with the CEO for an 18-hole round of golf occurred in Chengdu about eight months ago, when the former CEO (now President and GM) of a Canadian company we had just acquired was in town on business. Things went much as they normally do on a golf course.

The second time was a few months later, during a trip to Canada for our first board meeting there. My CEO, the Canadian GM and I hit the links again. A few times during the round my CEO drove his golf cart right up to his ball and got out to hit, even though we were both still behind him. This is a rather severe violation of golf etiquette. I was surprised, because the CEO golfs every weekend. He should know better.

A few days later we got up early and headed to the course for another round before an afternoon flight back to China. This time it was the CEO, an old friend of his from High School who now lives in Canada, and me. I quickly realized we were not playing by the same rules as before.

The CEO didn’t even bother to wait for me. He played the round pretty much as if he was alone on the course. He chatted with his friend and with me, but he never waited for me to hit. In fact, he looked at me rather disapprovingly whenever I did anything that risked holding him up. His friend, who was not a very skilled golfer, had paid for all three of us to play a round on this very expensive course. He started out hitting the ball a few times, but only actually putted on two or three holes. Usually he picked his ball up after hitting it once or twice on each hole, saying “I don’t want to hold you up, Mr. President”. I, however, was trying to get a round in. So I continued to drive as quickly to my ball as the cart would take me and whack at it with no practice swings as soon as I got there just to keep up with the CEO.

Eventually the friend rode with me in my cart for a few holes and admonished that I should just be picking up my ball and deferring to the CEO. I should also be trying to not hold him up but make every attempt to hit the ball weakly and not as accurately as him. Furthermore, I should tell a few more jokes and make myself the butt of his if I can find a way to do it. “He’s under a lot of pressure. This is his way of relaxing. You’re not here to have your fun. You’re here to assist him in having his.”

I still played every hole, but I stopped going to look for badly hit balls, and sometimes had to rather comically throw a ball ahead of me as I approached an OB marker, jump from the golf cart, club in hand, and whack hurriedly at my ball.

After that round I started to see that the idolization of our CEO happens at every level, and trickles down as well. Heads of departments are treated like generals in the imperial court, and if they don’t like you a promotion will never come. So people agonize over pleasing as many people above them as possible.

I get away with a lot, because I’m a foreigner. If I tried to insist I be treated like everyone else I probably wouldn’t last long here, because I make a lot of cultural mistakes on a daily basis. Thankfully, most of them are minor these days. I’ve already committed all the big ones. But at the same time I get rewarded for saying and doing the right things. And when those compliments come, I don’t ever forget them.

This is all very formulaic, to be honest. For example, the last trip to Canada we met with a high-level Toronto head of the Canadian operations for a Chinese bank. As we were on the elevator to the lobby after the meeting, I commented on how nice their office was. The banker then said, in Classic Chinese self-deprecating form, that it was too bare. The walls lacked artwork and they still had a lot of work to do.

I commented that with such a great space selection on the 28th floor overlooking all of Toronto and Lake Ontario, the banker had negated need for fancy artwork on the walls.

The CEO and the banker laughed and lavished me with compliments on my understanding of Chinese cultural appropriateness.

A couple of weeks ago I ran into a similar situation at a dinner with a government official who, during the course of conversation with me decided to claim that western eating utensils were more refined than holding two pieces of wood together. I knew immediately the appropriate response was to state he was decidedly right (disagreement is a skill I have yet to master…too complicated and delicate an act to tell someone of higher rank that they are wrong), but that chop sticks carried with them more culture and tradition.

Wading through a career that involves regular work with Chinese executives is difficult. If I could narrow this long post down to one sentence, it would be this: To deal effectively with Chinese executives, it’s probably best to read about Chinese emperors.

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