Reviews
One Billion Customers: Lessons from the Front Lines of Doing Business in China
by James McGregor. New York, NY: The Free Press (Simon & Schuster, Inc.), 2005. 336 pp. $27.00 hardcover
Anyone involved for any length of time in commercial transactions with China has read his or her share of the many books that claim to explain all and reveal the secrets that will make the difference between success and failure. One Billion Customers stands out from this crowd in a few important ways.
James McGregor, former head of Dow Jones & Co.'s China office, started out in China as a journalist. He is now a businessperson in China and has thoughtfully structured the book with this audience in mind. Each chapter contains an overview, an often-riveting story broken up into short subsections, and a wrap-up section entitled "What This Means for You." Each chapter closes with McGregor's "Little Red Book of Business" that lifts the most important lessons of each chapter and places them in the businessperson's favorite format, the bulleted list.
It is the carefully chosen stories, and the descriptions of the characters that bring these stories to life, that are the heart of the book. Many of the stories have become legends in the history of China business and are familiar to those of us who have watched the events unfold. But McGregor zeroes in on the details that are most likely to provide lessons for a foreign company operating in China.
Many of these lessons arise out of the face-to-face interactions between Chinese and foreign managers and between Chinese or foreign businesspeople and PRC bureaucrats. For instance, in the chapter on Morgan Stanley's joint-venture investment bank, China International Capital Corp., McGregor discusses the different styles and perceptions of the venture's two leaders—Jack Wadsworth of Morgan Stanley and Wang Qishan, now mayor of Beijing but then head of China Construction Bank. McGregor points out not only the cultural differences that were partly responsible for the problems between the two, but also the fact that the two men used interpreters from within their respective organizations who filtered the communication according to the interpreters' own agendas. The lesson: Hire independent translators.
In a chapter on corruption, McGregor recounts the rise and fall of smuggler Lai Changxing, who ran a phenomenally successful operation in the southern port city of Xiamen, Fujian. Lai's superior ability to form personal relationships with PRC officials propelled him to the top, but it was not enough to prevent his downfall when leaders in Beijing needed a high-profile case to demonstrate their commitment to eliminating corruption. The lesson for foreign businesspeople: "[R]elationships and personal power reign supreme" in China. But, McGregor states firmly, "Don't Bribe. Nobody stays bought and the Chinese know it is against American law. Instead, invest in long-term, mutually beneficial relationships with customers including training, travel, and recreation opportunities."
McGregor also uses his experience as chief China representative for Dow Jones to suggest ways to solve problems that arise with PRC government officials who will inevitably interfere in the day-to-day operations of a foreign company in China and may even attack the very existence of the foreign operation. This was the case for Dow Jones and Reuters, when Xinhua News Agency, acting as both regulator and competitor, tried to use its authority to move in on the lucrative financial news market by demanding that the two companies pay heavy fees and turn over their proprietary technology to Xinhua. McGregor's success at beating back this attempt provides another set of important lessons for foreign companies facing such issues today: Establish government relations functions to anticipate, and deal with, such inevitable issues. These experts will be crucial to deciding how high up to take your dispute, how hard to push the bureaucracy, and when to take a deal, McGregor says.
His concluding chapter provides some insights—and perhaps solace—for foreign companies fearing the rise of new Chinese multinationals. McGregor points to thousand-year-old traditions that are likely to stand in the way of Chinese corporations' growth. Among these are the "stuffed-duck-style" educational system in which "[s]ubjects are taught in isolation and rarely does anyone make a link between two subjects, like statistics and marketing." Another is the fact that internal cooperation is largely absent from most Chinese organizations, which tend to develop from the top down under a "benevolent dictator." This is why, according to McGregor, "Long term mentoring is the single most effective technique for foreign companies to build an effective Chinese executive corps."
The book boils down such lessons particularly well. In this way it succeeds where a wordier narrative, or a more academic management textbook, would not. China experts may take issue with some of his generalizations about the Chinese psyche. Others may quibble with the solutions he proposes. These objections do not detract from the book's value as an important tool for foreign businesspeople in China. In short, McGregor has written a book about doing business in China that seems destined to become a classic.
—Catherine Gelb
Catherine Gelb is editor of the CBR.
The Business of Lobbying in China
by Scott Kennedy. Cambridge, MA: Harvard University Press, 2005. pp.278. $49.95 hardcover.
During a recent taxi ride in Washington, DC, a lobbyist estimated that $1 billion per month was being spent in the nation's capital on lobbying activities. Though the Washington lobbying scene may seem mysterious to many, even less is known about the level of interaction between business groups and the central government in China. Scott Kennedy's groundbreaking work, The Business of Lobbying in China, which was based on his doctoral dissertation, attempts to navigate these uncharted waters.
Formalized associations of business groups did not exist in China until recently, in part, because of central-government worries about organized activity and also because of the "free-rider" effect—essentially, Mancur Olson's theory that groups generally rely on the collective action of others to derive benefits rather than expending valuable resources. Unlike in the United States, where officials are banned from holding other positions, China permits sitting officials to preside over trade groups, thus diminishing some of the autonomy that a business association might otherwise enjoy. These dual-hat officials may unduly influence or hinder the national coordination of industry-specific policy. At the same time, however, lobbying efforts may be facilitated when an official who is tasked with the regulation of an industry also presides over its trade association. As Kennedy writes, "The limited autonomy of business associations—due to a government role in their creation, affiliation with government agencies and the frequent presence of government officials on the staff, and limited overlap among some associations originally organized by ownership—is still commonplace."
Through a series of case studies, Kennedy, an assistant professor at Indiana University, closely examines three industries that illustrate the larger lobbying picture in China: steel, consumer electronics, and software. Steel is predominantly state owned, while consumer electronics is dominated by the private sector. The software industry falls somewhere in the middle and includes a balance of foreign and domestic players. Kennedy documents, analyzes, and tracks how far China's business groups have come in asserting their places at China's policy tables. He concludes that, "while small firms are occasionally aided by associations, one economic factor in particular, size, has decisively shaped companies' relative ability to influence policy."
The large state-owned enterprises (SOEs) that operate China's steel mills have long enjoyed regular access to bureaucrats, notes Kennedy, reducing the need for trade associations in the steel industry. Kennedy raises an important observation about the future trajectory of China's policy process: Lobbying will pit trade associations and large SOEs against the newly created bureaucracies that have limited, but growing, influence in policy circles. For example, Kennedy cites environmental regulators, who had, until recently, been effectively sidelined by China's steel industry. As concern has grown over environmental protection, and as, Kennedy argues, statistics increasingly demonstrate the adverse impact of pollution and other environmental hazards on China's GDP, the balance of power has been shifting toward the environmental regulators and away from the metallurgy bureaucrats that protect steel interests.
In a case from the consumer electronics industry that Kennedy highlights, Premier Zhu Rongji in January 1998 ordered the Ministry of Finance to impose a tax on the domestic consumption of VCD and DVD players throughout China. Industry made its intense opposition known through various channels, including National People's Congress deputies, noting that such a tax would contribute to unemployment. Three months later, Zhu rescinded his order.
The software industry is peculiar in that it has characteristics, according to Kennedy, that propel "government-business ties further in the direction of pluralism" compared to the steel and consumer electronics industries in China. These traits include a knowledge-intensive industry with an extremely young, highly educated workforce and low economies of scale, compelling executives and bureaucrats to listen more closely to employees in this sector or risk losing workers or companies to a competing company or jurisdiction that will listen. Perhaps because of their independence, voluntary nature, and flat organizational structures, Kennedy argues that the software trade associations are the least aggressive in China, have less access to high officials, and are thus less effective.
Through a series of well-documented case studies, Kennedy presents an intelligent and accessible analysis of "the business of lobbying in China." He does a superb job of focusing on industries that are national in scope and that command the attention of senior policymakers in China. For business leaders, academics, and graduate students alike, The Business of Lobbying in China illuminates the nuances associated with the complex political and business cultures in China.
—Mark T. Fung
Mark T. Fung recently completed his dissertation, "Bonds and Bureaucrats: The Politics of Finance in China: 1953-2003," at the Johns Hopkins University School of Advanced International Studies.
The Travels of a T-Shirt in the Global Economy
by Pietra Rivoli. Hoboken, NJ: John Wiley & Sons, Inc., 2005. 215 pp. $29.95 hardcover.
The Travels of a T-Shirt in the Global Economy presents an engaging account of globalization through the life of a $6 T-shirt. Pietra Rivoli traces the life of her T-shirt from a cotton production plant in Texas to a factory in Shanghai to a used T-shirt market in Tanzania. She explains the economic and political factors involved in globalization through the personal accounts of different characters involved in the life of her shirt. The author also provides solid economic data to support her arguments. Drawing on her background as a professor of international business at Georgetown University's McDonough School of Business and on her travels to the locations discussed in the book, Rivoli combines an academic study with illustrative examples.
Travels of a T-Shirt is divided into four parts, each devoted to different stages in a T-shirt's life. Each chapter could be read separately, depending on the reader's particular interest. For instance, a "China reader" might skim the sections on the history of American cotton and pay closer attention to chapters devoted to China. Here the author discusses her T-shirt's assembly and the factory conditions surrounding it. She argues that the drudgery at the factories is a necessary step in the development of any industrializing country, citing factories in Manchester, England, and the United States as some examples. Docile women working in poor conditions were at the heart of every industrial revolution, she writes, and China is no exception. Factory work, though often dangerous, has served as a route to freedom and further development in much of the developed world. Rivoli also explores China's rise as an apparel exporter, noting that "Americans purchase approximately 1 billion garments made in China each year, four for every U.S. citizen."
One of her more interesting arguments is her critique of US cotton subsidies. Rivoli argues that US cotton farmers have developed such strong commercial infrastructure and reached such a high technological level that the subsidies' removal would do little to reduce their competitiveness in global markets. She also suggests that low labor costs could impinge on scientific and economic progress because it could encourage hiring instead of developing new technology. This applies to China, where abundant, cheap labor has discouraged investment in cotton-production technology.
Rivoli also presents interesting insights about the global clothing market. For instance, most writing on globalization focuses on production and retail; discussion of what happens after an item is sold is rare. She goes a step further, exploring the afterlife of a T-shirt, and discovering that the United States dominates the world's clothing recycling industry.
The author wrote Travels of a T-Shirt in response to student-organized anti-globalization protests at Georgetown University, hoping to find a way to reconcile the two extremes of the globalization debate. Her goal was not to convince the reader of a certain argument, but rather to tell a story that reveals the complexities involved in the debate. This she does admirably, all the while giving readers a well-rounded understanding of globalization.
Rivoli's conversational approach, along with the charts, graphs, and photographs scattered throughout the book, make Travels of a T-Shirt an easy and enjoyable read, worthwhile for anyone interested in deepening their understanding of globalization and international business. Since the book explores both political and economic implications, it should be useful to political leaders and businesspeople alike.
—Maria Repnikova
Maria Repnikova is a research assistant at the CBR.
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