Air Quality

Peter’s Tex Mex

Clients/Blog/Book/Family

1206 hrs.

Amid all of the focus the melamine milk crisis, the world seems to be on a hair trigger with regards to Chinese quality. One recent example is the commentary surrounding the crash last Thursday of Cessna’s new prototype light sport aircraft, the Cessna 162 SkyCatcher during certification testing southeast of Cessna’s HQ in Wichita, Kansas. (h/t to Plastic Pilot.)

Red Flag on the Flight Line

Cessna has designed the SkyCatcher to make aircraft ownership accessible to an entirely new economic bracket. The SkyCatcher’s suggested retail price is US$111,500. That sounds like a lot, but to put that into perspective, consider that Cessna’s next-least-expensive airplane, the Cessna 172 Skyhawk SP, starts at a suggested retail price that would buy two-and-a-half fully-loaded SkyCatchers. That’s a huge difference in the world of recreational aircraft.

To make such a price even possible, the company is also planning the revolutionary step of manufacturing the planes in China. This is naturally drawing some skeptical attention from the aviation community. There is an old saying, after all, that there are old pilots, and there are bold pilots, but there are very few old, bold pilots, and the aviation community tends to be somewhat conservative.

News of the crash sent the chatterati into a tizzy, with speculation leaning heavily toward the China connection as the problem. Never mind that the prototype was built right in the good old USA, that the test pilot was performing maneuvers to test the controllability of the aircraft at the time, and the probability that either pilot error, weather, or a previously unidentified design flaw could have been the cause. No, the automatic assumption is that the problem was Cessna’s decision to build the aircraft in China.

So blaming anyone or anything in China for the crash apparently has no basis in fact. But the matter brings up a couple of potential issues.

Where Does Your Airline Get Its Fix?


040928_AMECO_05 (Photo: G. Schlager, Lufthansa Technik AG)

As concerned as the world’s authorities are now about the tainted milk issue, there is heightened sensitivity around Chinese quality across all industries. With the exception of toys and food, thee is no industry more sensitive to defects than aviation. I don’t know about you, but simply putting the phrases “quality fade” and “aviation safety” in the same sentence is enough to get me reaching for the airsickness bag.

Over the last decade, A growing number of international airlines have elected to perform routine-but-labor-intensive maintenance, repairs, and overhauls (MRO, in the trade) in centers in China certified by the FAA and other international aviation regulators. Most of these are joint ventures with MRO companies or aviation engineering firms from overseas, including Swire’s HAECO from Hong Kong and Lufthansa Technik from Germany.

If quality concerns around China continue – and there is no reason to think they won’t – it will only be a matter of time before this becomes an issue for the airlines. United Airlines’ machinists already tried to make it one, but given that it was related to a pending closure of United’s San Francisco maintenance base, it got ignored. Let it come from a crusading reporter from a big name media outlet, however, and many international airlines are going to find themselves with a China quality challenge of their own.

Ay-Are-Jay What?

The other matter is China’s renascent aircraft manufacturing business. Depending on whose estimate you believe, China has invested somewhere between US$ 800 million and US$ 1.5 billion on developing the ARJ21 commuter jet, and has managed to sell only 5 outside of China to aircraft leasing firm GECAS, a unit of GE. (Note that another GE unit supplies the engines for the ARJ21 and has what I figure is around US$1.1 billion in orders for the engines, which gives GE an incentive to roll the log a bit.)

The folks over at AVIC I Commercial Aircraft Company (ACAC), who are trying to sell Chinese planes to the world against more established Canadian, Brazilian, Russian, and Japanese, competition, now have to make their pitch to people who are going to ask a very hard question: “if Chinese manufacturers cannot even guarantee the quality of their milk, how can we in good conscience buy Chinese airliners?”

Whether or not you think the question is even fair, it will be asked, if it hasn’t already. And if I were an ACAC executive – or an aerospace policymaker – I’d be a mite tweaked. But it underscores that the fondest hopes of China’s leaders for a robust domestic aviation industry can ride on something as simple as the contents of a package of baby formula.

Why Change Happens

Many commentators whom I hold in high esteem, like David Dayton at Silk Road, are pessimistic that this crisis will incite change. I think it can, provided enough people in the other industries in China whose reputations have been tainted by association get tired of losing opportunities because of somebody else’s screwups.

China will get on the active quality bandwagon when it hurts too much to do otherwise, which means when enough politically powerful local industries like aerospace begin feeling the pinch of clients wary of “Chinese quality.”

And with each new quality crisis, that day gets closer.

Being the Change: Fonterra and the Milk Crisis

In the Hutong

Missing my nonfat latte

1933 hrs.

Better writers have covered the Melamine Milk Crisis at great depth already (check out Imagethief’s article here as an example, or China Law Blog’s coverage) so I won’t belabor the story. I do, however, have two points to add, germane to what we’ve been writing here till now.

The Joint Venture and Ethical Rot

Fonterra, the large New Zealand food cooperative that partnered with Sanlu to manufacture the formula, will be remembered for a long time as a company that allegedly knew about the contamination some weeks prior to the kidney stone outbreak, that, justly or otherwise, reputedly did nothing to either stop the sale of the product or alert authorities. I cannot speak for the veracity of these claims, but they are circulating as if they are the truth.

In the Court of Public Opinion, what Fonterra did and did not know is now immaterial, and if the allegations of inaction are false, the company is going to face an epic and expensive effort in China and elsewhere to repair their reputation. I will not speculate on the cost to the company if the allegations are true.

The lesson of Fonterra is plain: foreign partners in joint ventures have three choices:

1. Pick a China partner of unquestionable operational integrity, and then watch over them like a hawk to ensure they continue to operate in an ethical manner, especially in crises;

2. Pick a China partner of imperfect operational integrity, then cram into every employee the importance of maintaining the public trust over any other consideration;

or my favorite

3. Avoid the joint-venture question entirely to ensure you can set and enforce ethical standards with ease.

Readers of this blog know that I am fond of saying that the Sino-foreign joint venture is a lawyer’s dream and a manager’s nightmare. Maintaining a semblance of control and a consistent strategy are difficult enough in a JV. In an environment where business ethics and corporate governance are no longer of mere academic importance, yet where moral relativism and the Eleventh Commandment (“thou shalt not get caught”) frame individual and corporate codes of conduct, the joint-venture does not lend itself to the cultivation of ethical leadership.

My point is not to absolve Fonterra, Sanlu, or anyone else of any action or inaction because of their corporate structure. Rather it is to sound a warning to companies who are in or are considering a joint venture that these are easy places for ethical lapses to fester unless both partners are committed to setting – and enforcing – high ethical standards. Articulating those standards, training to them, and sticking by them even when there will be hell to pay for doing so is the only way to prepare for a crisis like this, and to have much hope of long-term recovery in its wake.

Quality is Free

When I was fresh out of graduate school, I was thrust into a production management role for which I was somewhat under-qualified. (I’m being charitable, here.) My job was to spend six days a week supervising the outsourced production of accessory furniture across 30 factories in greater China. I had trained in marketing and logistics.

Two things saved me: a deep affection for factories and line workers I gained working teen summers in my dad’s investment casting foundry, and Philip B. Crosby’s book Quality Is Free: The Art of Making Quality Certain. In the space of less than three hundred readable pages, Crosby gave me a graduate course in managing quality. But what was important was his core point: ensuring quality – and the considerable time, attention, and costs associated with the effort – is where profits come from. Until you stop seeing quality control as a cost center, you will never have passable quality.

Or, as cookie-madam Debbie Fields once said, “good enough never is.”

The end result of this upheaval (once the children are healed and the accused have done the perp walk) will be that a few smart companies across China’s food sector will see this as an opportunity, and will make major investments in quality assurance, both human and technical. These companies will realize that if nothing else, making investments in inspectors and equipment will be cheaper than regularly yanking product off the shelves.

As Mattel and hundreds of toy retailers learned last year, though, you can’t trust quality to the last guy up the supply chain. There has been far too much “trust” and not enough “verify” in handling quality issues out of The World’s Factory of late. When I was inspecting furniture in Taiwan, I frequently did it alongside third-party inspectors and buyers from some of my company’s largest customers – American retailers. It pissed me off, it was costly for the buyers, but it was the only way to ensure that nothing slipped through.

It would be easy to throw this whole issue on the government, but this crisis has proved once again that business cannot wait for government action. The real lesson of the Melamine Milk Crisis is that quality is everybody’s problem, from the farmer to the retailer.

Nota Bene

If you haven’t already, you have got to read what David Dayton over at the Silk Road blog is writing about all of this. David is a longtime China and Thailand factory guy. He knows the ugliness around the quality control business, including what it is like to go into a factory and get accused of racism (or worse) for rejecting a critical shipment for quality lapses. In his writing, he’s pretty merciless about the issues, but he’s absolutely right. I am a certified pollyanna when it comes to China, but not when it comes to quality control.

The price of quality is eternal vigilance. And it is really clear there are lots of people asleep at their posts – or just looking the other way.

Being the Change: The Ethics of Baidu

Starbucks Pinnacle

Desperately Seeking Bandwidth

1241 hrs.

Over the weekend, The Register ran an a special report on Baidu, alleging that the Chinese search giant is engaged in technological chicanery in order to keep users plugged into vast and illegal reservoirs of online music (h/t maths at Music 2.0). The report is here.

Searching for trouble

The report explains – in forensic detail – how Baidu allegedly continues to make money on illegal downloads while maintaining plausible deniability. A taste:

Baidu’s MP3 Search was monitored for six months at the end of last year, analyzing search results using 600 songs spread across multiple genre. A number of areas that seemed incongruous to a pure and neutral search engine were discovered, and three details emerged.

Firstly, a network of mysterious sites with closely related domain names contributed more than 50 per cent of the search links returned by Baidu. The songs hosted on the mystery sites were unreachable except through the Baidu search engine. Furthermore, infringement notifications resulted in unlicensed songs simply moving from one of these domains to another.

Secondly, Baidu does not link to the two leading paid download sites in China, 9Sky and Top100. While Google for example will return results for a song search to licensed providers (7Digital, Amazon, eMusic or even iTunes) as well as Torrent trackers, Baidu is much more selective.

Thirdly, music blogs and forums naturally form a significant source of music search links for any search engine. But with Baidu, these contributed to only 30 per cent of the music search links on Baidu’s MP3 Search.

The cumulative effect is to keep the “free music flowing” for Baidu’s users – with devastating consequences not just for creators, but for rival internet businesses.

Even more compelling, the report also suggests that Baidu bullies journalists, publications, and websites into silence about its practices by threats and coercion.

In a superb post, Maths, a digital music advocate and avid China-watcher, builds on The Register’s report and asks some penetrating ethical questions, suggesting that if the above allegations are proven true, Baidu’s advertisers, investors, advocates, and anyone else working with Baidu in its music efforts are soiled by association.

It matters if the cat is white or black

I’m not quite ready argue for Baidu’s conviction in the court of public opinion. The Register’s report is only three days old, and I cannot ignore that the company has a list of powerful rivals that grows as it expands its business. Time will tell how valid these allegations are. Their appearance on a global website demands further scrutiny by the music industry, the media and the Chinese authorities.

But let’s leave the specific matter of Baidu aside for a moment and examine the larger question.

At what point, we need to ask, does it become unethical to deal with a company that appears to be actively violating the law? Do you take a zero-tolerance approach? Do you wait for a criminal indictment? Do you do your own due-diligence? Or do you simply shrug your shoulders and say “I really don’t care what kind of people I do business with, as long as my company makes out on the deal?”

These are not easy questions, but they are an example of the kind of issues a company needs to deal with in advance of doing business in China, or failing that, right now. As I noted in my second post on the iTunes blockage, business in China is a moral and ethical wasteland, so moral quandaries are a part of doing business here. Smart companies address those issues up front with clear guidelines.

As something of a moral absolutist, I know where I’d draw the line, but I recognize that others prefer a more flexible approach. Being a moral relativist in your approach to international business ethics does not mean you don’t have ethical standards, however: it just means that every company will have different standards. Each company still need to draw a line, and you need to be able to justify it not only to local audiences here in China, but to your full range of stakeholders around the world.

Failing to do so puts your reputation – and your business – at the mercy of your least ethical partner.

Why are we here?

More important, such issues also give us a precious opportunity to demonstrate that the presence of our companies in China exerts a positive influence on the healthy development of the country and its economy. Either we come to Rome and do as the Romans, or we show up determined to leave the place better than we left it.

Deciding who we will (and will not) do business with – and under what circumstances – lies at the heart of our effect on China.

Chinese Film and Those Pesky Foreign Audiences

In the Hutong

Glued to CNBC

1804 hrs.


The New York Times does an amusing little story about a hush-hush crash course at the UCLA film school for young Chinese entertainment industry suits, aiming to instruct the PRC execs in the way Hollywood does business ( China’s Media Moguls Tutored by Masters of Hollywood).

Why can’t you people just read the words?

The executives, all in their “20s and 30s,” were given lectures and workshops by some of the leading lights in Hollywood, each clearly motivated as much by a desire to crack China as any thought of helping the youngsters.

But the money quote was not delivered by Dan Glickman of the MPAA, Mike Simpson from William Morris, or even Gareth Wigan, the former vice-Chair of Sony Pictures and one of Hollywood’s leading globalizers.

No, the quote of the day was delivered by one of the young Chinese executives:

“When the floor opened for questions, the Chinese had questions of a different sort…Another wondered how Chinese films could find a global audience when American viewers continue to reject subtitles. ‘Americans are spoiled,’ the questioner complained.”

Moviemaking would be great if it weren’t for that darned audience

Without arguing the speaker’s point, he calls our attention to the real core of China’s global box-office problem.

The gap in quality of material and production values between Chinese films and big-budget western productions is still significant, but it is declining. The quality of China’s leading productions easily matches that of some of the more popular independent films in the United States.

But for all of the improvements on the production side, Chinese film executives have a lot to learn about marketing – especially international marketing. Rule one, of course, is that blaming your target customers for your failings is a fig-leaf for incompetence.

One of the core differences between the film business in China and that in the United States is that the US industry is at least nominally driven by what people want to pay to watch. The result is a lot of dreck, of course, but dreck that at least has a shot at making some money.

Chinese film, on the other hand, is dominated by the creative conflict between filmmakers and regulators, the latter acting on behalf of party ideologues. There is precious little room in that clash of power and ego for the voices of executives speaking on behalf of the ticket-buying audience.

So despite the best intentions of Robert Rosen, dean of the UCLA School of Theater, FIlm, and Television, and China Film Group’s urbane vice-chairman Jiao Hongfen, one does not hold out much hope for improved prospects for Chinese film in with significant masses of non-Chinese moviegoers.

At least, not until marketers start having a say in the product.

Free Books of the Week: Core Marketing Texts

In the Hutong

Counting Books

1606 hrs.

If you have an historic point-of-view on your chosen occupation or profession, chances are pretty good that you can point to one book – or several books – that laid out the need for and underlying assumptions of your craft.

For the marketing and communications professions, two of these texts are available for your perusal at no charge. Both were written during a period in which the behavioral sciences – including psychoanalytic theory – were just beginning to have an influence on the way companies communicated.

The first is Propaganda, the most important work of Edward L. Bernays, a man usually grouped with Harold Burson as one of the creators of the public relations craft. Bernays, a nephew of psychoanalysis pioneer Sigmund Freud, did much to incorporate his uncle’s theories into a means of influencing public opinion. Bernays was unabashed in his advocacy of the manipulation of publication as a means of governing in a democracy.

Before his ideas could get much public airing, however, they were adopted in significant part by the National Socialists in Germany, and as a result the word “propaganda” leaves a sour taste on the Western tongue.

Bernays’ ideas remain provocative, however, and they are worth a review in a day when the marketing craft seems to be going more quantitative and less human.

The other book on the Hutong Free Shelf this week is Claude C. Hopkins’ book Scientific Advertising. As wary as I am of overly-quantitative approaches to what is fundamentally a qualitative craft, Hopkins reminds us that we cannot leave it all up to our guts. Hopkins’ work was fundamental in the formation of some of the giants of the advertising business, including David Ogilvy.

If you work in or with the marketing side of your business, these two short books should be on your reading pile.

Seinfeld Won’t Travel. Pity, That.

Starbucks Guomao 1

Coffee shakes are not ice-cream drinks

1134 hrs.

In all of the attention given to Microsoft’s selection of an aging comedian to be its voice to a wider computer and software market whose tastes skew quite young, very little attention is given to a larger question:

Even if Jerry Seinfeld retains relevance and power within the United States, how is this $300 million campaign going to help the company outside of the English-speaking world, in places like China, Brazil, India, and Russia that will decide the future of the company? As Wilson Ng at SunStar Cebu points out, there are more Windows users in the world than there are English speakers.

The Global Windows Appeal

Jerry is a nice guy, after all, but he is not exactly a global icon. Microsoft needs help around the world with the challenges it faces, and that goes beyond dealing with Apple. Granting for the sake of argument that Microsoft will succeed to an extent with its Seinfeld effort in the U.S., the company needs a global consumer campaign designed to win back (or just “win”) the support of consumers around the world. And the company cannot wait for the next version of either Windows or the XBoX to do it.

Naturally, the focus of the campaign will be different, because of the severity of threats Microsoft faces worldwide, and especially here in China:

  • Piracy, or the sale and use of unlicensed or under-licensed copies of Windows. (By under-licensed, I mean the retail re-sale of software meant to be sold only with a new computer, so-called OEM packages);
  • Free and Open Source Software (FOSS) (i.e., Linux, Firefox, etc.), and
  • Localized policy efforts fighting the Microsoft monopoly and what is perceived as monopolistic-rent type costs for necessary upgrades.

In China, Microsoft has focused most of its efforts to date on working with its OEM partners (i.e, computer manufacturers) to get them to purchase genuine OEM packages to install on the computers they sell, and on large organizations to end workplace piracy in massive enterprises and government organizations. They’ve made appreciable progress there, a testament (in my opinion) to the locally-savvy efforts orchestrated by Microsoft China’s Genuine Software czar David Ben Kay and a highly supportive Tim Chen – both of whom have now left Microsoft to pursue other passions.

The Coming Global Consumer Campaign

The efforts David and Tim started will continue, but the gaping hole in Microsoft’s efforts remains with the consumer. But I suspect this is about to end, and the corporate support for the Seinfeld campaign is going to give Microsoft’s marketers around the world the chance to tackle a long-overdue consumer campaign. I’d bet we see something not long after the New Year, possibly even in time for Chinese New Year holiday season.

The cost will not be insignificant. A back-of-the-paper-napkin guesstimate would put the cost of a global Microsoft feel-good campaign at between three and five times the planned spend on the Seinfeld campaign, with probably 20% of that going to greater China. Microsoft has the cash, so the cost really is not the problem.

The problem is connection. If Microsoft turns the Seinfeld campaign into a win, it will be because the company’s decision-makers – the guys with their finger on the budget button – have a superior grasp of consumer marketing and retain something of a psychic connection to the people who use Windows in the U.S. and the other anglophone markets where Jerry might have an impact.

Whether Microsoft has or can build that psychic connection in China and markets around the world, and whether the executives in each of Microsoft’s respective “subs” possess strong consumer marketing skills will determine whether such a campaign has a shot at success.

The Seinfeld campaign is a signal. Whatever needs to happen at Microsoft to get the software development machine back on track will only be the beginning of what they need to accomplish. The other part is turning Microsoft into a genuine consumer marketing organization.

Because the global standard in the technology and innovative industries now lies at the nexus of superior products and powerful communications.

Twitter Branding?

In the Hutong

They shoot artists, don’t they?

1614 hrs.

You can understand why many people in the corporate communications gig are still coming to grips with what many people call “Web 2.0,” that collective set of online applications that depend on you, me, and other users to create the content. (I prefer calling it “people-generated media,” but one buzzphrase is as good as another.) This is, after all, confusing stuff for a marketing craft formed in the comfy crucible of television, radio, newspapers, and magazines.

Sarah Milstein makes a good start in The New York Times, giving some good ideas about how Twitter can be used imaginatively in business. She explains some basics that apply to everyone (share ideas, share knowledge, and show respect), gives several that are imaginative (let executivess and employees Twitter as employees to make the company look with it, run contests, solicit feedback, respond to complaints, advise on status, thank customers.)

My biggest complaint about Sarah’s approach is the Screwdriver-Nail Conundrum. Just because you CAN do something with Twitter doesn’t mean that it is always the best tool to use (a truism that applies to any communications or marketing tool.)

Experience (and Sarah’s article) suggest that there is no set formula for what Web 2.0 tools you should use in business, or how you should use them. Such decisions are not formulaic – they have more to do with your company, its business, its people, and the individuals and entities you need to interact with than the tools itself.

The best advice I can give to anyone about using Twitter (or blogs, or Facebook, or whatever) in your business is to actually go and try it out for yourself. Play with it for a while, get to know it, and then if you need go find somebody to help you figure out if and how it makes sense to use it in your business.

This is especially true when you wander beyond the the U.S. and Canada. Very few new media agencies or advisors in North America come packaged with regional experience or focus (Christine Lu is one of the very few.) The way to use these tools in China requires a more nuanced approach than in the U.S.

In the meantime, Joel Postman over at Socialized (which Sarah links) suggests some basic but excellent and principles-based best practices for using Twitter, but he keeps them basic and principles-based.

The Huiyuan Test

Starbucks Houshayu village

Socialist networking

1037 hrs.

Picture 2.png

As the rest of the world (and China’s banks) obsess on the unfolding saga of Fannie Mae and Freddie Mac, here in China Coca-Cola’s announced intention to purchase Chinese beverage maker Huiyuan Juice Company is about to force the government to make a very hard choice.

An excellent acquisition…

You don’t need a Ph.D. to see the business value of the combination. Huiyuan, a company that produces a quality product with a better-than-average reputation, lacks the marketing and distribution to turn itself into the leading brand in China in its sector, or to expand beyond the mainland. Coca-Cola desperately wants an acquisition that will allow it to expand its hold in the non-fizzy soft drink category. Coke’s distribution network and marketing prowess are a perfect fit for Huiyuan.

I am not a big fan of mergers or acquisitions, but at the ground level in China, this one makes huge sense for both brands.

The only possible fly in the ointment is a fairly large one: how will the Chinese government react to Coke’s offer?

…at an “interesting” time.

Steve Dickinson at the law firm of Harris and Moure, pllc posted an extended analysis of China’s new Anti-Monopoly Law a few weeks ago on China Law Blog. In that context, he took the time to lay out what he sees as the government’s policy and regulatory approach to foreign direct investment:

“• Foreigners are free to invest in China through WFOEs [wholly-foreign-owned enterprises] or JVs [joint ventures] in the areas of investment classified as permitted or encouraged in the current Catalog for Guiding Foreign Investment.

• Foreigners are permitted to purchase small established Chinese companies where the government is too busy to be concerned with management of the small company

• Foreigners are permitted to purchase large established Chinese companies suffering from financial problems, provided the foreign purchaser will restructure the company and assume the company’s obligations to workers and creditors.

• Foreigners are permitted to acquire a minority interest in large and successful Chinese companies, provided such investment will provide collateral benefits in the form of technology transfer or access to new markets.

• Foreigners are not permitted under any circumstances to purchase a majority interest in a large and successful established Chinese company.”

In addition, the government may look at the transaction in the light of the new anti-monopoly law. While I doubt Coke would pass a pedestrian definition as a monopolist in China’s highly fragmented beverage market (even after the Huiyuan purchase), any acquisition by a foreign market leader would invite scrutiny.

So since this deal involves the purchase of a large, healthy Chinese company by a major foreign player, we are almost assured that the matter is being discussed at high levels of the Chinese government.

Communications will decide

On the surface, all of the above seems to spell trouble for the deal. At the very least there is likely to be a formal review, and there is the possibility that the government might attempt to block the transaction, or force a revision of the terms.

(Ostensibly, the government should have no direct say in this matter, as it appears that what is being purchased are shares listed in Hong Kong. Yet while Hong Kong is a special administrative region of China and thus possesses considerable autonomy, if the Chinese government is concerned about the precedent the transaction will set, they will almost certainly step in.)

All of this depends on how closely the government wants to adhere to its explicit and implicit policy regarding foreign direct investment. And to a great extent, that depends on how carefully Coke and Huiyuan have laid the groundwork with the government in advance of announcing the deal.

Because if there is anyone in the beverage industry in China who decides that such an acquisition would damage them, or if there is someone who just wants to play the spoiler as a means of keeping Huiyuan from turning into a killer competitor, a campaign to derail this deal may be in the offing. Such opposition stopped Carlyle’s effort to purchase a major stake in construction equipment maker Xugong. Given the current policy climate, a similar campaign could have a devastating effect on the Coke/Huiyuan deal.

Whether this deal succeeds, then, has less to do with its considerable business merits or with the law itself. It has much more to do with how well Coke handles the government debates and public discussion on the deal’s merit.

Hopefully, Coke has learned from Carlyle’s experience, and has prepared a case that will convince the nation’s leaders to make an exception to policy and will gain the support of consumers and influential public voices in China.

FDI is not just for foreigners anymore

What makes this interesting, of course, has nothing to do with Coke or Huiyuan, but the future of foreign direct investment in China and the role Chinese business will play on the world stage.

Whatever action the Chinese government takes – or does not take – in this case will serve to further define what is seen as acceptable foreign investment, and what is unwelcome. To accept the deal would be an acknowledgement that China remains open to investment, but that it does not regard every single Chinese company of a certain size as a “national champion.”

To block the deal – or to force its significant revision, will send a message that China will not have its brands acquired just as they are building equity. It will put the nation on record as saying that from now on, it will be China doing the buying, thank you, except when somebody else can help us clean up an inconvenient mess.

In other words, if China blocks Coke, it will be a statement that China wants to approach foreign direct investment in a manner not terribly different than the way governments in developed worlds do.

China’s policy makers would not shrink from making such a statement – on the contrary, it would have incredible emotional appeal.

But for the sake of Coke and Huiyuan, let us hope that they can wait a while to do so.

There is No Such Thing as THE Book on China Business

In the Hutong

Reading myself to sleep

2217 hrs.


In early May, Forbes’ Beijing correspondent wrote a scathing review of Jack Perkowski’s book Managing the Dragon.

(Full disclosure: I have met Jack, and I have good friends who work closely with him now or have in the past. I think it would be presumptuous of me to call him a friend.)

Forbes uses Jack’s book as an example of a stream of tomes that have emerged from the laptops of businessmen in China over the past several years. The reviewer’s issue with this flood of ink and pulp is that the books offer little in the way of original insight. He also believes that the people who really know what they are doing are not writing books about it.

“When it come to the actual business of making money in China, the real problem with today’s legions of experts is that the best ones are likely not selling their snake oil on television, the lecture circuit, or the bookshelf. The Masters of the Universe who are making (or losing) enormous sums in China now aren’t talking much about how they’re doing it; they’re too protective of their turf, and they’re too busy making the next deal.

The article also suggests Juan Antonio Fernandez and Laurie Underwood’s book China CEO and James Kynge’s China Shakes the World as being better reads.

Why read?

I agree with Forbes’ broader points (and not just because they serve to justify my own failure to write a book.) At the same time, I think the reviewer is perhaps over-dismissive of the body of literature on doing business in China.

The book did suffer from some of the issue the reviewer notes. And as a longtime resident in China, I can sympathize with the reviewer’s exasperation: the longer you live here, the more difficult it becomes to find a book on business in China that adds much to your own store of observations and conclusions.

But that does not mean we stop reading those books. Most of us want to hone our understanding of this vastly complicated place, or if nothing else compare our own ideas with those of others. Trust me, even the most jaded of China hands needs the occasional sanity check, some of us more often than others.

Even so, for most of these books are not meant for us, or for people like Forbes’ reviewer. They are aimed at the massive majority of business people in the world who know little or less about doing business here, and yet find themselves having to (or wanting to) contend with China in their daily work.

And for that reason this review, like so many others, misses the point: what the reader is – or, should be – looking for in a book about China.

Talkin’ bout my edjamication

When it comes to learning about China and doing business here, there is no substitute for actually planting yourself on the ground, struggling through Chinese lessons, and running a local business. Sadly, not everyone either directly or indirectly responsible for their company’s China operations is willing or able to do that.

There is also a silent legion of hopeful young people living in the Americas, Europe, and indeed elsewhere in Asia who want to pursue a business career – or part of one – in China.

These two groups want and need every drop of wisdom and experience they can absorb from a distance. And with respect to greats like Orville Schell, Bob Scalapino, the late John King Faribank, and our much admired James Kynge, the “big picture” can only serve as the most basic foundation of such knowledge.

And we need a more robust corpus of literature than a single study like that of Fernandez and Underwood.

Because here is the problem: too many of us in the middle- to upper-ranks of the China operations of multinational companies, in agencies, or in consultancies spend a mind-bending amount of our time explaining the very basics of doing business in China to individuals who lack even a fundamental foundation in the subject (or worse, who don’t and think they do). Believe it or not, a book on doing business in China – even a bad book on doing business in China – is a step in the right direction – as long as it is just the first step.

My problem, then, is not with the books, but how they are marketed and reviewed.

First, book marketers have got to stop selling their tomes as the “the bible for business people in China.” There is no such thing. China is far too large and complex (and doing business in any large country is far too large and complex) to be distilled into something you can comfortably carry through an airport metal-detector.

If you are going to auto-educate on China and not come live here, you had better be working your way through a shelf of books, a stack of really good articles, and a handful of decent blogs.

Second, book reviewers need to help manage the expectations of their readers. Tell people that, jacket copy to the contrary notwithstanding, the best book on China should be the starting point for anyone serious about China, and that any business person who is not sufficiently serious about China to read a half-dozen or ten good books about the place probably shouldn’t even bother. Then take the time to dig into every book and come up with where and how that book might find value on an executive’s shelf.

Because I can’t speak for anyone else, but I often find remarkable pearls in books that smart, knowledgeable, and incisive reviewers have scorched so badly that they wind up relegated to the bargain table, all hope of the paperback destroyed. It makes me wonder if the craft of book reviewing has gone horribly wrong someplace.

The Masters of the Universe Fallacy

Let us turn to the other suggestion Forbes makes, that the real smart guys are keeping their mouths shut, because anybody who REALLY knew anything is going to keep it to themselves and make money off of it.

I’m sure there are a lot of smart people holding fire – especially in the dealmaking side of the business. But there are a lot of wise people in the advisory professions who find it both smart and lucrative to give away some of their wisdom for the price of a hardcover because it is a great way to build up the value of their companies and to gain prestige both inside and outside of their organizations that they can turn into cash.

This is what I call The Heroin Model of Consulting. Give away (or sell at a low price) the first bit of really smart advice, and they’ll pay through the nose to hook into a stream of it.

One good example of this is Tom Doctoroff, Greater China Chairman of ad agency JWT, and his book Billions: Selling to the New Chinese Consumer. Tom packs – squeezes – a lot of thoughtful insight into a thought-provoking 217 pages. You can read this book and walk away better prepared to conduct marketing or product development in China, and at the same time feel like “man, if I wanted to build an advertising program to sell to Chinese, I’d sure as hell give Tom and JWT a shot at my business.”

Another example is Cyrill Eltschinger, founder of Beijing-based technology outsourcing firm IT United, and his book Source Code China: The New Global Hub of IT Outsourcing. Cyrill could have simply made the case that China was every bit as attractive a destination for IT outsourced work as India. But he didn’t stop there. He gives advice on everything from outsourcing strategy to the nuts-and-bolts of outsourcing in China.

These are just two that jump off my shelf, but they are examples of a growing genre of books by businesspeople who are successful in China and who are sharing a decent part of their hard-earned wisdom as a way to enhance their business.

Two real plagues

The business literature on China does face two other significant problems: subject matter and the publishing cycle.

As to subject matter, I think it is time that businessmen who would write books about China follow the lead of Doctoroff and Eltschinger and begin to write books that deal not with China or China business broadly, but take a narrower, more focused approach.

Part of the problem I suspect the reviewer has with the business books he is reading is that they are trying to be all things to all people. Arguably, when the China market was a backwater with more potential than real opportunity, this was probably the safe approach to ensure you would have an audience of sufficient size to justify printing 10,000 copies.

I would argue that the Chinese economy has grown to a size and diversity that will support books that deal with specific functions (human resources), sectors (retailing, fashion, technology, energy), and issues (environmental stewardship, ethics, etc.) in the context of China business. Given the environment on the ground today, this is where the need – and where the opportunities – lie.

The other huge issue is the publishing cycle. The speed at which China is changing and business is developing is simply not compatible with the amount of time it takes to move a book from a lightbulb in the brain of the author to the customers bookshelf. All too often, books that are timely when they are drafted are obsolete before they are available at Amazon.

A wise publisher ready to take a little gamble would do well to explore ways to slice the publishing cycle in half – or by 75% – and use books on China as a test bed for such an approach. Imaging having a book to market 20 days after the finished first draft. And if the book was, say, a Seth Godin-like 40,000 words instead of much longer, there might be a way to deliver something on China that is both insightful and timely.

Books in context

I deliver a training program on reading for young Chinese and foreign executives beginning their careers in China. Rather than teaching them how to read (I take that skill as a given), I try to help them find an answer a question that is incredibly common among the ranks of time-challenged businesspeople: what do I read, why, and how much?

A key takeaway in that course is that in the end, there is no such thing as bad reading – as long as you read critically and read for perspective as well as for content.

The key challenge for those of us in business in China is to stop looking for fast-food answers to perennial problems. Most of us who have read a few general business titles have learned that despite their own claims, at best a business book like Blue Ocean Strategy, Built to Last, In Search of Excellence or any similar “Guru Lit” is a new perspective on challenges that gets our brains thinking about a given subject in a new way.

Every book you read on China will add to your overall store of information, but in the end it is how you swish that soup of facts, insights, and perspectives into your own conclusions that give those books value. Selling or judging a book on its own is a worthy endeavor, and reviews of books by themselves must and should continue. But such reviews should recognize that even mediocre, biased, or bad books are valuable in the context of a long reading list and a wide shelf.

Otherwise, we run the risk of perpetuating this idea that somewhere out there is a bible on doing business in China.

And it just ain’t there.