The Value of Meaning in China

02 Oct 2005|Darrel Rhea

About a year ago, an ex-employee who now lives in China called and asked me to be on the board of directors of a Chinese brewing company he had the opportunity to buy. While that venture didn’t come together, my friend has his fingers in a wide range of other businesses ranging from exporting organically grown foods and ingredients to the Chinese music business, where he is very successfully managing and producing his eldest daughter’s career. Not only is she on her way to being a Chinese rock star, but they are branching out into ad jingles for the European market. He’s definitely an opportunistic entrepreneur operating on the frontier of a developing market.

Though the venture he is building is still small, he is a good example of what is happening with business in China these days. Where opportunities abound, opportunism rears its interested head. Many, like my friend, are scrambling to take advantage of the openings provided by changes in regulation, changes in values, changes in capital availability, and changes at almost every other level. What is especially interesting about this situation is that the dynamic nature of this market makes it exceptionally hard for businessmen to plan and manage based on “sound” (traditional) principles and expect long term success to come of it. As Donald Sull termed it, in his excellent recent publication, Made In China, it’s “the fog of the future.”

Of course, every businessman and entrepreneur deals with that same fog, arising perhaps for different reasons, and it makes it tough to predict success. But, here at Cheskin, we are learning that there are some key processes that, while not guaranteeing success, lessen the risk of failure. Entrepreneurs and established businesses in China, as well as in any market, would do well to heed them.

Let’s look at an example of a company that has been in China for some time, and lost serious market share. At one time, Cisco, generally acknowledged as a global technology leader, was also the undisputed leader as “China’s backbone.” No more: in the last four years alone, Cisco has dropped from revenues of $1B in 2001 to about $600MM, reducing market share from 95% to 40%. What happened here, when the demand and opportunity are clearly increasing dramatically? Local competition muscled in, when Huawei, established in 1988, created a joint venture with 3Com and signed an OEM agreement with Siemens (Cisco’s reseller in Europe—ouch). Huawei grew sales to almost $5.6B in 2004, with reports that for the first half of 2005, sales are at $3.3B, which is 85% growth – and 50% of this is from outside China.

Even without studying the situation deeply, this is a clear case of someone forgetting to align the company (Cisco) with what is meaningful in this geographical market. To start, look at the fact that Cisco employs only 600 employees in China (vs. 30,000 employed by Huawei) and only 5 of Cisco’s 200 vice presidents are Chinese. (I don’t have the numbers on how many of Huawei’s VPs are Chinese, but I bet it’s more than 5.) While this is an operational issue rather than a product/service issue, whoever made the decisions about management recruiting most certainly overlooked one of the deeply entrenched values of the Chinese people — loyalty to family, community and country. This type of insensitivity to personal meaning can backfire big time, like a slide from 95% to 40% in just a few years.

Apparently another reason that Cisco keeps losing its major contracts, according to street conversation in China, is that they “don’t pay enough attention to the Chinese people.” When we probed what that meant, we were told that they just were pretty much ignoring local requirements and didn’t get the importance for locals to be able to “plug in” rather than have to refit for technological compatibility. This is, again, an unfortunate oversight of what is meaningful to the customer.

…now about that Chinese rock star business…

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