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Book Reviews

Doing Business in China

by Tim Ambler and Morgen Witzel. New York: Routledge, 2000. 222 pp. $25.99 softcover, $85.00 hardcover.

No book can sufficiently prepare a businessperson for the obstacles and intricacies encountered when running an enterprise in China. Thankfully, the authors of Doing Business in China are well aware of this fact. They focus on the general characteristics of China's business environment while including plenty of anecdotes to satisfy the reader's need for detail. This approach proves effective, as the analysis is broad without seeming superficial and is in no danger of becoming dated quickly. China specialists will not find a trove of new ideas here, however--this book is intended for the China novice and is a sketch to be colored in later through professional experience.

The authors--Tim Ambler, a senior fellow at the London Business School, and Morgan Witzel, a partner in a publishing and editorial firm--divide Doing Business in China into two parts: the first half is a cultural and historical overview of China and its investment climate, and the second half covers the essential steps in forming, marketing, and running a business in China. Particularly useful are discussions about planning a first visit to China, effectively packaging and advertising products for the Chinese consumer, and setting up a company management structure and style that will minimize employee turnover. Throughout the book the authors emphasize that the goals of Western and Chinese businesspeople are usually the same but that their methods of negotiation frequently clash.

Ambler and Witzel see business as an extension of culture and tie the two areas together whenever possible. Some of their observations are typical of books of this genre--the Confucian emphasis on relationships and hierarchy and China's historical distrust of the West, for example. Others are more unusual. For instance, the authors argue that despite the booming counterfeit market, Chinese consumers are and will remain more loyal to brands than their Western counterparts. The reasons for this are not only the benefits of brand reliability and accountability in an economy that lacks strong consumer rights protections but, more importantly, the associative nature of Chinese culture.

The authors also explore a vital aspect of China's business landscape--overseas Chinese business communities. The 60 million overseas Chinese (including those in Hong Kong and Taiwan) collectively grossed more than China in 1995, and many maintain close cultural and professional ties to the mainland. Not only do these communities themselves represent significant business opportunities for investors, particularly those in Malaysia and the Philippines, but they can also provide contacts and strategic advice that may greatly facilitate the entrance of Western companies into the PRC.

Doing Business in China can be useful as a general guide not only to China's business environment but to Chinese culture and psychology. The savvy foreign investor, however, will undoubtedly look to numerous other sources for solutions to specific problems.

--Drake Weisert

China Business: The Rules of the Game

by Carolyn Blackman. New South Wales, Australia: Allen & Unwin, 2000. 230 pp. $24.95 softcover.

Carolyn Blackman has done an extraordinary thing in her latest book: she has managed to pull together some truly chilling cautionary tales about how not to operate a foreign venture in China. The strength of China Business: The Rules of the Game is this reliance on the frank words of expatriate managers of foreign-invested enterprises in China to tell readers what working in China is really like. The first-person narratives often last several pages and lay bare company mistakes that are rarely captured in print.

Granted, Blackman has carefully concealed the company names and sometimes the industries in which the companies operate, though not always--there are at least two examples of problems encountered in the beverage industry, an industry that requires that all foreign investors form joint ventures (see The CBR, July-August 2001, p.52). Because China's regulatory system differs from sector to sector, with some characterized by much more government interference than others, knowing the sector involved in each story can be helpful. In one of the beverage cases, for example, a foreign company with four Chinese partners encountered the following problem when importing a wine press:

"...One hundred meters away from the ship was a concrete bridge. The container wouldn't fit under the bridge--it hit the bridge and bent the structure. We know now that the people at the winery, the customs and the transport company knew that they had broken the press just as it was leaving port. As soon as they knew it a big banquet was organized, a big celebration. So when the press arrived at the vineyard, yes, there was a problem, but they thought they wouldn't worry about it until the next morning. That was ten days before vintage so it was a serious problem. We left the banquet about midnight. The problem was covered up by everyone because they were all covering for each other.... The investigation took us six months. We tested the concrete on the bridge and the concrete that was in the press, and it was the same. They said, 'When the press arrived and we opened the container the press was broken.' I said 'Alright, I've never seen any concrete in a container before.'"

Blackman intersperses her own analyses in these accounts, occasionally summarizing mid-story to advance the narrative. These carefully placed explanations and her follow-up analyses do not interrupt the flow of the story, but they occasionally gloss over or neglect to address some illuminating points about the company's decisions and about the perspective of the storyteller. For example, occasionally the accounts of the expatriate managers turn bitter and reveal some deep prejudices, or at best, admissions of having to overcome these prejudices. In a chapter Blackman accurately entitles "Disappointed Expectations" is the account of one head of China operations for a foreign consumer-goods manufacturer who complains about the Chinese government's duplicity. Officials assured his company when it entered the market that it would be one of 12 manufacturers in the sector, though eight years later the company finds itself one of 80 competing just in Shanghai. After admitting that the company was misled by the promise of China's phantom 1.2 billion consumer market, he says of the Chinese officials, "They are corrupt, too. You've always got to be watching. What is bred into them is a desire for bribery and corruption...."

Though Blackman devotes an entire chapter to cultural issues, some discussion throughout of the motivations behind these and other comments seems warranted. For example, one expatriate says, "I think in Shanghai they are much more aggressive, more ruthless, argumentative. If you are left with something, they have lost. There isn't the type of negotiation where you want a satisfactory outcome for both sides. Everything has to be argued about. Our experience of our partners was that is was plain opportunistic greed." It would have helped to have had some explanation of whether this comment contained any truth, or was just one businessman's opinion of Chinese regional differences.

In fact, culture clashes permeate the book, and Blackman highlights many relevant issues for Western businesspeople to keep in mind when such clashes inevitably occur. Yet the structure of the book, perhaps a necessary consequence of the reliance on long first-person accounts, makes for a scattered discussion of this central topic. In some ways this can be a good thing: The structure allows the reader to dip into the book for 10 or 15 minutes and come away with a good story complete with context and brief analysis. For this reason it is ideal for its target market, the Westerner doing business in China.

More experienced China watchers might find the short analyses a bit frustrating and might want a more cohesive discussion of some of the more intractable cultural differences between Westerners and Chinese. All readers might find the editing at times to have been a bit rushed; though I generally do not advocate editing for an American audience, I confess that American readers might, as I did, wonder what, exactly, the section called "Sharp Practices" is really about.

Nevertheless, Blackman, a contributor to this magazine and author of Negotiating China: Case Studies and Strategies, works hard to point out the lessons learned by foreign businesspeople, and her insights help explain much of what might be roiling under the surface of the conflicts her subjects recount. These lessons, and the compelling accounts of how they were learned, make China Business an enlightening and entertaining read.

--Catherine Gelb

Catherine Gelb is editor of The CBR.

Inside Chinese Business: A Guide for Managers Worldwide

by Ming-Jer Chen. Boston: Harvard Business School Press, 2001. 231 pp. $29.95 hardcover.

Inside Chinese Business explains the Chinese business world, including that of overseas Chinese and those of Chinese heritage, through social and cultural contexts. Ming-Jer Chen, founder of the Global Chinese Business Initiative at the Wharton School of the University of Pennsylvania and current Bigelow Research Professor of Business Administration at the Darden School of the University of Virginia, offers a comprehensive look into the cultural dimensions of Chinese business and encourages an integrative, rather than comparative, approach to international business studies. In pursuit of his stated goal, "to bring the connections between Chinese culture and business to the surface for the Western businessperson," he covers topics such as Chinese "business families," guanxi (connections defined by reciprocity and mutual obligations), "face," Chinese communication patterns, and negotiations.

Chen addresses the strengths and weaknesses of present Chinese and Western business practices, and how they may change with globalization. For example, as Chinese businesses expand beyond their home markets, traditional management practices, such as flexible and informal record keeping and decisionmaking based on personal trust, will become more specialized and professional. As a result, the role of guanxi in business dealings may recede somewhat. The traditional Chinese preference for keeping a low profile will shift to an attention to marketing and promoting Chinese branded products. Many Chinese businesspeople are already turning from indirect and drawn-out negotiating styles to more direct Western-style ones.

The book is divided into chapters that the reader can reference as needed, but it is also easy enough to read in its entirety, with boxes illustrating the major points of each chapter. While the subtitle is "A Guide for Managers Worldwide," executives reading the book should not expect it to be a "how to" manual, as it lacks detailed case studies and does not lay out step-by-step instructions for succeeding in Chinese business. Instead, it offers a general overview and explanations of Chinese business practices and behavior that would be useful to those new to the China market or as a refresher to those already doing business there.
--Kattie Lee

Kattie Lee is the business and marketing manager of The CBR.

2000-2001: Analysis and Prediction of China's Rural Economic Situation

by the Rural Development Research Institute of the China Academy of Social Sciences and the Rural Economy Research Group of the National Bureau of Statistics. Beijing: Social Sciences Documentation Publishing House, 2001. 281 pp. Yen25.00 ($3.02) softcover.

The biggest problem facing Chinese policymakers in late 2001 is the falling growth rate of farmers' incomes and the growing income gap between urban and rural households--urban households now earn nearly three times as much as their rural counterparts. Falling agricultural prices and insufficient demand signal that structural reform of the rural economy is urgently needed. The Chinese-language report, 2000-2001: Analysis and Prediction of China's Rural Economic Situation, is a comprehensive examination of China's rural economy.

With the rural economy accounting for 50.7 percent of China's GDP in 2000, its health is vital to the health of China's economy as a whole. In rural areas, traditional agricultural production has given way to the manufacturing and service industries, which now make up 16.1 percent, 22.9 percent, and 11.7 percent, respectively, of China's overall GDP.

Government subsidies and policies have distorted the prices of major agricultural products, which do not reflect market rules of supply and demand. As a result, domestic prices have been 20-30 percent higher than international prices for most agricultural products. A dearth of market information and a primitive distribution network also block improvements in agricultural production. Because the rural economy is, for the most part, unable to compete in international markets, the authors stress the need for a reasonable pricing mechanism.

After China enters the World Trade Organization (WTO), government protection and subsidies will inevitably give way to market competition, the authors argue. Given the low productivity rates of traditional family farms, the book raises concerns about whether farmers and local officials are sufficiently prepared for China's WTO entry. The authors strongly recommend making good use of "green box" policies, which do not violate WTO rules and often take the form of government investment in rural infrastructure, technology transfer, and education. China still has a comparative advantage in labor-intensive crops such as vegetables, fruits, and tea, as well as in animal husbandry and fishery. The authors recommend tailoring local strategies to suit China's various geographic regions.

The rural economy's bottleneck has been the scarcity of water. The authors warn that China will be unable to achieve a sustainable economy with the current highly inefficient water-use patterns. In addition, soil erosion and desertification have further exacerbated the rural economy's problems.

Boosting the rural economy, which is heavily burdened by high poverty and illiteracy rates, is a daunting task. According to official figures, 26 million people live on less than $1 a day in China. Though the overall number of schools in the countryside has been rising, many farmers cannot afford annual school fees of about Yen526 ($63.55) per child. And the social security system remains woefully inadequate in the countryside--where it exists at all.

Eight special essays on topics such as the income gap, the influence of price fluctuations on rural household incomes, and structural shifts in the rural economy, are included at the end of the book to help readers gain a deeper knowledge of these issues. The book's statistics, from the National Bureau of Statistics, are an excellent source for those researching China's rural economy.

This well-researched statistical report, which is updated annually, serves as a timely reference for the study of the rural economy. The authors, all researchers in the China Academy of Social Sciences, are authorities in their fields. Despite its thorough analysis and broad scope, however, 2000-2001: Analysis and Prediction of China's Rural Economic Situation does not suggest many concrete policies to address the plethora of difficulties facing China's rural areas.

--Dong Ke

Dong Ke is the research assistant at The CBR.

Foreign Direct Investment in Transitional Economies: A Case Study of China and Poland

by Michael Du Pont. New York: St. Martin's Press, LLC, 2000. 324 pp. $69.95 hardcover.

In Foreign Direct Investment in Transitional Economies: A Case Study of China and Poland, Michael Du Pont, a specialist in foreign investment and strategic investment policy, has compiled the results of thought-provoking research into an impressive book on foreign direct investment (FDI) in these two transition economies. He focuses on the agricultural, food processing, automotive manufacturing, and paper and cement sectors of each country to demonstrate that traditional and conventional FDI theories fail to explain the current state of FDI inflows in countries that are moving from socialist to market economies.

The first few chapters introduce FDI theory and recent research. The comparison of the two countries begins in Chapter 3 with a detailed overview of investment and trade policies. The author notes an interesting difference in each country's approach to attracting FDI--though Poland and China now have comparable economic conditions, Poland adopted the "Big Bang" approach to economic liberalization while China has chosen to take its time. Du Pont then examines the trends and patterns of FDI inflow in these countries, and finds, among other discoveries, that China attracts more FDI from recently developed economies such as Hong Kong than does Poland, which gets most of its FDI from developed countries.

The author goes on to examine the results of a survey he conducted with foreign firms in China and Poland. His findings reveal the different results Poland's Big Bang yielded compared to China's gradualism. For instance, China's production levels and capital-to-labor ratios are lower than Poland's in all four industries. China also has fewer wholly foreign-owned enterprises than Poland, indicating significant differences in ownership structures--a result of heavy government interference. Later chapters analyze the determinants of FDI based on the survey findings and discuss the performance of FDI projects in the areas of technology transfer, export activities, and employment. Poland experienced advanced technology transfer, skilled labor employment, and elevated production levels for export (rather than for domestic consumption) more often than China, resulting in better performance among FDI projects in Poland than in China. The quality of the business environment and the level of development in each country also played important roles in foreign companies' decisions to invest.

The book's greatest strength is the author's ability to explain, and hold the reader's interest in, a complicated subject--Du Pont was able to distinguish the nature and workings of FDI in two geographically and culturally different countries in simple terms. One of the drawbacks of carrying out original research, however, is the amount of time involved in compiling and analyzing the results. Du Pont surveyed 200 companies in the targeted industries in China and Poland in 1996 to gather the basic data for his research, and used Chinese data from 1979-96 and Polish data from 1989-96--reflecting the years in which each country embarked on its economic reforms. Needless to say, the author's research could benefit from more recent statistics. Du Pont also points out that his study is limited by differences in statistical reporting techniques and the understanding and definitions of FDI in each country.

Nevertheless, Foreign Direct Investment in Transitional Economies: A Case Study of China and Poland is a great resource for academics and students researching the topic of FDI in transitional economies. Chinese and Polish officials handling FDI projects might also gain insight by reading this extensive comparative research.

--Naziha Hassan

Naziha Hassan is the publications assistant at The CBR.