One billion customers

It is James McGregor’s absorbing account of his tenure in China as Dow Jones’s China boss. I am fascinated by China and its rapid rise and I have been wanting to read this book for a while now. The book is littered with insights about China and its culture. I picked out some of insights that intrigued me the most in the first chapter:

1. [P10-11] While the West in built on a guilt-based foundation where eternal damnation or sinning curbs bad behavior, China is built on a Shame-based foundation. It is the fear of exposure and resultant shame that is a problem. So Chinese can do anything as long as they don’t get caught. China has adopted the civil law philosophy of Japan and Germany, unlike India which has adopted the common law philosophy of the UK and USA.

2. [P15] McGregor talks of how Hong Kong has been surpassed by mainland China and quotes a chinese proverb “Fu Bu Guo San Dai” meaning “Wealth can’t last more than 3 generations”.

At the end of every chapter McGregor gives a neat summary of the insights in what he calls the Little Red Book of Business that serves an excellent summary of that chapter.

McGregor goes onto give a brief but well written synopsis on China’s history to explain why Chinese are extraordinarily suspicious of foreigners.

Morgan Stanley’s Debacle: The next chapter [Chapter 2] discusses the audacious marriage of Morgan Stanley and the Chinese government controlled China Construction Bank to create China’s first investment bank which ultimately unravels after years of struggles between the 2 partners thanks to the clash between western and chinese styles. The chapter is summed up nicely with a chinese proverb “Tong Chuang Yi Meng” meaning “Two people sleeping in the same bed having different dreams”. But interestingly, Morgan Stanley though badly bruised and battered by the joint venture, laughed all the way to the bank with a 50% share of Chinese IPOs.

Corruption is Endemic: Chapter 3 chronicles the spectacular rise and the equally spectacular fall of a peasant turned wheeler dealer. Indians will find eery similarities with the descriptions of endemic corruption involving the police, military, smuggling nexus with graft from the businessmen to get preferential treatment. McGregor also gives some recipes for succeeding in China without selling your soul – emulate GE by training Chinese executives at their famed crotonville center. Or create opportunities for Chinese to work in your company for temporary periods to learn. It all seems to boil down to Know How. This is the biggest thing the Chinese are looking for. If you can give that to them you can succeed without having to be corrupt.

Click the continue-reading link below for more insights from the book.

Beating Xinhua: Chapter 4 McGregor talks about how he emerged victorious from the fight of his life – Xinhua (the state news agency) which wanted to take over Dow Jones’s business with new regulations. He enlisted the support of Reuters which was the other major player in China. Working in tandem they got the support of the US Government and parts of China’s bureaucracy that were opposed to the Xinhua regulations because it hindered China’s entry into WTO – a prized goal for China.

McDonnell Douglas’s Flight of Fancy: Chapter 5 discusses McDonnell Douglas’s ill-fated joint venture in China to manufacture MD-80s. The initiative was led by Gareth Chang who became a China Expert eventhough he left China as a 6 year old. I see parallels to this, when an Indian IT engineer becomes the India offshoring expert at our client sites with the only qualification being the Indian origin. This chapter ends with a telling conclusion “A final lesson is that basing your business on special deals from the Chinese government is foolhardy. The Chinese Government offers special deals because you have something they want, not because they want to help build your business. Unless there are clear and competitive commercial underpinnings, you will lose, no matter what the government has promised.”

Rupert Murdoch’s Fox Hunts: Chapter 6 covers how Rupert Murdoch established a successful presence in China in partnership with Liu Chongle, a chinese media entrepreneur. But what caught my attention is the inspiring story of Hu Shuli’s rise in the Chinese Media with her fearless investigative reporting magazine Caijing. Caijing mainly covers financial news but also jumped into the SARS epidemic by reporting the real state of affairs much to the chagrin of Chinese officials. I am reminded of India’s own fearless

Telecom Juggernaut: Chapter 7 is dedicated to the Chinese Telecom industry which has made dizzying progress by leveraging foreign technology and assets to build a state of the art telecom infrastructure with the Government firmly in charge. In just 10years starting 1993, a whopping 500 million phonelines were added. While the monopoly buildout was going on customers had to wait for months to get a phone line and had to pay hundreds of dollars in bribes (Sounds familiar to our BSNL story,right?). Into this quagmire, UTStarcom steps in, a startup founded by Chinese American entrepreneurs, with a Fixed Wireless technology which proves to be enormously cheap and signs up customers at a rapid clip forcing the government to not interfere with UT Starcom much to the dismay of the telecom ministry which was intent on destroying UTStarcom to retain the monopoly. In India, a similar fixed wireless technology is used by Airtel, Tata Indicom and Reliance to offer landlines competing with BSNL People in India are switching to the private phones in droves.

Another interesting tidbit – “Chinese love to point out that they invented porcelain, silk, eyeglasses, paper, the printing press, and gunpowder. They were eating with sanitary chopsticks for 1000 years while Europeans reaching into common bowls with dirty hands. But the crush of politically driven information and thought control, and Confucian traditions, have left China today a place where the people are capable of incremental innovation, but not innovativebreakthroughs. Breakthrough ideas come from the West.”. I see this as sort of similar to India – for any meaningful pride we have to point back to the Vedas where supposedly (mainly supported by conjectures) everything that has been discovered or invented or to be invented is present and today’s India is mostly a workforce for the West without any major indigenous breakthroughs.

The final chapter 8 is a broad sweep of coverage. First up – China’s first American MBA introduced by a consortium in 1993. By contrast India’s IIMs have existed for a long time.

Second, some key business and management issues of which there are two that I found interesting.

1. Rote Rules: Chinese students are among the best. But they learn under a system self-deprecatingly called ‘Tianyoshi Jiaoyu” or “stuffed dick-style education”. Essentially they learn by rote which prepares them mainly to be led and not lead. Sounds very similar to the Indian education system where rote rules.

2. China is Queue-less: Nobody waits in line in China – at banks, on buses, everybody elbows to the front. Same thing happens in business by rapidly diversifying into anything and everything to make money fast which is the overriding goal. This has resulted in a situation where the average life of a company is 5 years or less.

McGregor then covers 3 management styles from 3 different companies to show what is working – a husband-wife pair that runs a real estate business using a combo of western and chinese principles, a beverage company Wahaha that is run using the benevolent dictator model which works very well in China and lastly Lenovo – the IBM-Lenovo joint venture which has a blended team of IBM managers and Lenovo managers working together in what is being seen as the prototype of the future
Chinese company.

Overall McGregor has covered almost every topic that is connected with doing business in China. Because he uses colorful characters as protagonists and their stories, it makes for a surprisingly fast read considering the dry subject matter.

I’d strongly recommend reading this book if you are interested in China.

While McGregor comes across as fairly unbiased, I would be curious to know whether a Chinese would agree with his observations?

Can anyone recommend another business book on China written by a Mainlander?


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    Interesting review, Sukumar. The “Shame-based foundation” was a new insight. But I wonder if it is true because so many brilliant philosophers lived in China, Tao, Zen. Even Buddhism is a major force there. I somehow find that interpretation hard to believe.

    I personally feel that the moral standards may be low because of poverty. As the country progresses and there is more awareness the situation will change. I see that happening in India too. I remember a dialog from a Hindi movie Mirch Masala – “Character is a luxury meant only for the rich. We cannot afford it”

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    pk.karthik said December 19, 2007, 1:00 am:

    Intresting Insight Sukumar..i guess i need to grab the book…

    A great review ..

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    Sukumar (subscribed) said December 19, 2007, 10:58 am:

    thanks. As you say it is possible that the reason behind it is religion – confucius, buddhism etc. But i doubt if we can point this also back to poverty. I am sure there is some influence due to poverty but i think this goes to the fundamentals. This distinction of shame-based vs. guilt-based has been addressed by Geerts Hofstede’s book as well (you have read it). Hofstede says that shame-based is a facet of a collectivist society (India, China..) whereas guilt-based is a facet of a Individualist society (USA..). One way for us to find an example to tie it to poverty is, is to find a country that was shame based and poor and then later became rich and became guilt-based. i couldn’t come with any examples, can you?

    Thanks Karthik. I am glad you enjoyed it.

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    Thank you for the review Sukumar. I need to add this to my TO-READ list.

    BTW have you checked this

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    opps I missed the link. Here is the link for the column about Chinese control over US markets with Sovereign funds.

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    Nice write-up Sukumar!!.

    Interesting discussion about guilt and shame based foundation of the society. Need to think about that more.

    When you mention “Hong Kong has been surpassed by mainland China” – what exactly does the author mean?

    I do not understand how disbursing “know-how” will lead to lesser corruption.

    A recent article in “Time” seems to indicate that the current younger population in China is indifferent to the lack of political freedom and freedom of speech. They appreciate the current economic and financially freedom that the government has afforded them by opening up the economy and seem to be in no immediate mood to obtain political and thought freedom. As much as they appreciate the sacrifice and revolt at Tiananmen square, they would probably not undertake any such endeavor.

    I would have assumed that as people became better educated and obtained financial stability, they would be inclined to obtaining all other kinds of freedom and would take steps to achieve them. Maybe it will come in time when they have fully enjoyed the new found economic freedom and with more critical mass.

    Or perhaps, they feel some kind of obligation to the government for providing these new found opportunities and hence are not inclined to fight against many other forms of oppression by the government – almost seems like a silent handshake to scratch each others back 

    Does the book touch upon this aspect at all?


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    Sukumar (subscribed) said December 20, 2007, 7:09 am:

    Thanks Vamsi. That link on China’s and the Middle East’s forex reserves and the potential harm is very scary.

    1. Yeah shame-based vs. guilt-based is a very interesting cultural phenomenon.

    2. The author is referring to Mainland China’s economy galloping past Hong Kong’s.

    3. Sharing Knowhow reduces one’s need to pay bribes. This is the context of how one can be ethical and still do business in China. Since knowhow is the most sort after, by providing knowhow, you can avoid paying the bribes. This is what GE has done.

    4. The last point you made about young people not caring about freedom is very interesting. But given that they are talking to a western magazine Time would they have prvided their true feelings? This book unfortunately doesn’t deal with this aspect.

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    Thanks for the answers.

    Regarding young people not interested in freedom of speech/press as much as they should be, the following article seems to indicate that the same is happening in Russia too. This article is also from “Time”!!


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    Thanks for the answers.

    Regarding young people not interested in freedom of speech/press as much as they should be, the following article seems to indicate that the same is happening in Russia too. This article is also from “Time”!!


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    Sukumar (subscribed) said December 21, 2007, 5:01 am:

    Interesting point. I was discussing this with Priya Raju and she was saying it maybe because they don’t know what it is to be free because they have never had a democratic system. Although Russia has some rudimentary form of democracy now. My suspicion is that they may also be lulled into a comfort level by the government propaganda machine that works overtime in these countries. If we interviewed Chinese Americans or Russian Americans, will they have the same views?

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    In my very little exposure in interacting with some Chinese professionals (immigrants in USA), I observed these in contrast with Indian skilled immigrants

    1) Chinese professionals do not completely assimilate in US. They are trying to preserve their identity. Where as most Indians adapt rapidly into American system.
    2) Chinese think more politically than Indians. They want to have control/influence over American policy. Indians want complement the American political ideas
    3) Chinese professionals (legal immigrants) still do most of their conversation in Chinese. They usually are segregated and want to preserve their identity. Indians do want to have true global perspective.
    4) Many Chinese believe in administration to do something. So far, we could not drive the point that it is Congress that passes laws…and administration implements. ( Executive branch – President might veto or send back the bills…influence policy etc…but ultimately it is congress that is supreme power in any legislation)… May be due to one party system, and no true representation of people in legislation, they might be in that thinking. Indians on the other hand, already know the in and out of the system, rely much on lobbing, socializing, assimilation, penetration into the American system, to influence policy.
    5) Chinese understood the power of financial control and influence over the world trade, much better than India. Politically, unless a strong two (or 3) party system comes into picture, regional parties lose steam in India, with great leadership, however strong India might grow economically, we will still have very little political muscle over world affairs. Just look at our Afghan, Bangladesh, Sri Lanka, Burma and Nepal policy. These nations were our traditional friends. Never had any issues. Still, we lack any leverage (even mutual) over each others.

    Some of my observations could be stereotyped…like I said my interaction is limited.

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    Sukumar (subscribed) said December 22, 2007, 8:18 am:

    Btw forgot to mention that in china your home TVs can see only those channels that are govt authorized. Only the locales where expats live, you can get CNN etc. I’m sure that is another factor to consider.

    Interesting insights. I couldn’t agree with the integration aspect. First, level of integration would depend on how many generations have passed since immigrating. First generation finds it hard to integrate. This is true of most Indian first gen-ers as well. The second aspect to consider is the lack of fluency with English which Indians have (also consider that Indians going to the usa are the highly educated folks).

    I’m in total agreement on the last point. China definitely knows better how to make their international moves deftly sometimes bordering on the brilliant.

    The other 2 points not sure about those.

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    I am having a hard time believing that one does not know what freedom is if they did not have a democratic system in the first place.

    Irrespective, freedom in Russia was rolled back with Putin in power. I believe with Yeltsin and Gorbachev, Russia was on the path towards openness and perhaps eventual full-blown democracy. However, the pain associated with such a transformation was perhaps too much for the masses – due to wholesale poverty and corruption. Also, the loss of national pride with the splitting of U.S.S.R combined with the above added to the disillusionment.

    Under these circumstances, here comes a man who manages to not only improve the poverty situation, eradicate national debt amounting to $200 billion, improves national wages but also manages to restore some of the eroded national pride by invading rebel Chechnya and installing a puppet government.

    Sidebar: I can see some similarities between what is happening in Russia today and what happened to Germany during the 1930’s. A once proud nation of Germany was brought to its knees and insulted after the 1st world war via the Versailles treaty. This combined with economic depression made the situation ripe for someone like Hitler to spur up jingoistic sentiments. In Hitler’s situation, besides restoring the pride of Germany, he also brainwashed into the population anti-semitic and anti-lot-of-other-ethnic groups.

    With Putin, it looks like he does not have global ambitions and is not anti-any-group/race. Putin certainly does NOT seem to be another Htiler – certainly not.What he is looking for is the ability to control what happens within his own country without external influences. Looks like he wants Russia’s national boundaries to be respected and is willing to extend the same courtesy to other countries. He does not want any interference from external entities into Russia’s affairs. Of course, he also wants Russia to be considered as a power in international politics.

    Obviously, timing for Putin has been perfect with the rise of gas price which has made it easy to induce the economic improvement within his own country.

    With all this happening, I believe Russia has been lulled into a temporary period of complacency and the population is enjoying the new found consumer freedom and more importantly glad to have food in their table 3 times a day.

    Once Russia has digested and enjoyed the current state of situation I am hoping that sooner or later they will want more – freedom of speech, freedom of press etc. Now, if this want will be accommodated or quelled remains to be seen. In fact, some of this push towards democracy is already happening with Gary Kasparov et. al.

    I need to understand a lot more about China. However, here is my quick take on China – With China, under Moa, China felt like a unified entity in more than a century. I am inclined to believe that after Mao, Deng Xiaopings economic reforms and opening up SEZ’s (Special Economic Zone’s) and de-collectivization led to the formation of liberal forces that wanted more and perhaps resulted in Tiananmen Square. As with Russia, I believe that once this generation of middle-class has swallowed and digested the economic surplus that the government has afforded, they will want more. It remains to be seen when this will happen and see how far they are willing to go (or forego).


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    Sukumar (subscribed) said December 23, 2007, 11:33 pm:

    Thanks for the detailed comment Ganesh. I understand your point of view now. i think you are right.

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    Oops ! I caught this post a bit late sir …
    A line that most of them missed ‘when an Indian IT engineer becomes the India offshoring expert at our client sites with the only qualification being the Indian origin.’ Huh… but please do always remember that between the guy at client site and a bunch of out of college Engineers in India, some chaps have spun up a billion dollar offshoring industry 🙂 And yep, not many cases of McDonell type troubles I believe !

    I liked the comparison between China & India that was all over the post. As for books, I found lots of them by Chinese mainlanders in Amazon , but I guess all of them have been influenced either by a UCLA or a Stanford.
    I recently read in an HBR article that Prof Tarun khanna is working on a book titled ‘Billions of Entrepreneurs: How China and India are Reshaping Their Futures and Yours’ . Should be a nice read.It’s supposed to be out this Jan.

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    Sukumar (subscribed) said January 5, 2008, 12:19 am:

    Thanks Ranjit. While Indian IT engineers at client sites have certainly contributed, the industry was created first by Tata and then Infosys and Wipro – true Indian entreprenurship. For the longest time being an Indian was not anything you could be proud about especially when you’re abroad. Indian IT engineers becoming offshoring experts is a relatively recent phenomenon. They’ve successfully latched onto the oportunity after ofshoring became mainstream.

    Thanks also for the book link. Sounds interesting. I’ll add it to my todo list.

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    A lecture that was held in Carnegie Mellon earlier this month on how google has been doing business in China . Kai-Fu Lee, President of Google Greater China explains the fine points. Thought you would be interested in this. (I know you like google a lot 🙂 . Thanks.

    Did you know that Google bought out the domain cos lot of chinese ppl couldn’t spell out google ! It’s a nice & pretty informative lecture. liked it.

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    Sukumar (subscribed) said February 10, 2008, 7:41 pm:

    Thanks Ranjit for the interesting update on Google China.

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