BOOK REVIEW
Capitalism with Chinese characteristics Made in China: Secrets of China's Dynamic Entrepreneursby Winter
Nie and Katherine Xin with Lily Zhang
Reviewed by Muhammad Cohen
Like electricity and air travel, private businesses in China play key roles in
our personal and global economic lives even though we barely understand the
concept. Made in China begins to demystify the new breed of independent
businesses that are coming to dominate the world's fastest-growing major
economy.
The first surprise is the extent to which privately owned enterprises (POEs)
have supplanted state owned enterprises (SOEs) as China's economic driving
force. In 2000, SOEs accounted for 50% of fixed asset investment, POEs 42%,
with
foreign investment enterprises (FIEs) at 8%.
By 2002, POEs' investment overtook SOEs', and in 2003 POEs accounted for the
majority of fixed asset investment. For 2005, the last year given in the book,
POEs' 60% share of investment was nearly double that of SOEs.
POEs employed 207 million people in 2005, dwarfing the 65 million working in
SOEs. POEs produced nearly 78% of China's total exports in that year, valued at
almost US$6 billion. POEs also provided more than 75% of tax revenue to the
state treasury.
Far more surprising than the statistics are the people behind these POEs.
According to Made in China, China's typical entrepreneur of the 21st
century is not a princeling from a political dynasty or a party official
working on the side. Nor is the usual POE a remade SOE that's had its assets
privatized through some accounting sleight of hand. China's current generation
of entrepreneurs start their businesses the way their counterparts do in other
parts of the world: from scratch and usually on a shoestring.
Although the book focuses on primarily on the 21st century generation of POEs, Made
in China begins with three case studies from the earlier wave of
entrepreneurship that demonstrate show how pervasive China's private sector has
become. These examples show not just the powerful position of POEs in the
domestic market but their influence on global business.
Wahaha, founded in the late 1980s, led an almost charmed commercial life,
thanks in part to founder Zong Qinghou's almost preternatural marketing
prowess. The company got its name - which means "smiling child" and is even
more memorable in Chinese - in a public contest connected to its first product,
a nutritional supplement for kids. The company branched out into bottled water,
then leveraged that nationwide distribution network to launch Future Cola,
penetrating rural markets beyond the reach of Coke and Pepsi. Wahaha also
embraced France's Danone as a joint venture partner; after a decade of
spectacular growth, the two companies wound up fighting each other in lawsuits
on three continents.
Nice grew out of a joint venture between a former state-owned chemical factory
and a Hong Kong company in 1992. Although Unilever and Procter & Gamble
were already active in China, they focused on the high-end of the laundry
market using washing machines. Based in a rural village, Nice chief Zhuang
Qichuan focused on the majority that that still did washing by hand. He created
a new line of Diao (Eagle) products to replace the bars of "smelly soap"
previously used to wash clothes.
From that base, Nice moved up the value chain into laundry detergent as more
households obtained washing machines. By 2003, P&G had adopted an "Eagle
Shooting Campaign" aimed at its top rival.
America's eBay came to China in 2002 by purchasing EachNet, a copycat online
auction site, and soon held 90% of the market. Alibaba.com founder Jack Ma
suspected eBay would next invade his company's business-to-business online
sourcing platform. In response, Ma launched a rival consumer auction site,
Taobao (translates as "Treasure Hunt"). The aim was to keep eBay too busy
defending EachNet's turf to intrude on Alibaba's. By 2006, Taobao had captured
67% of the market, while EachNet had declined to 29% - eBay pulled out, handing
control to a Chinese partner.
With these examples as inspiration - then a digression into a history of
commerce in China rehashing folklore about different regions' merchant clans - Made
in China concentrates on the next generation of entrepreneurs eager to
pick up where those earlier successes left off. The authors interviewed 20
entrepreneurs chosen as a representative cross-section, asking them each 15
questions about their backgrounds, personalities, and their businesses.
From the questionnaire results, the authors - business professors at
Switzerland's IMD business school - try to find identify similarities between
entrepreneurs, their business, and their tactics. But there aren't any: just
over half of the founders have college degrees; some went into areas they knew
while others were guided by opportunity; some had government connections to
help them get started, but now most view government as a burden.
As their businesses have grown, some have opted to add partners, while others
have bought out co-founders or split the business with them; some keep key
positions in the hands of family or other early insiders while others opt for
fully professionalized management. China's entrepreneurs tend to be ambitious,
risk-takers or risk-seekers, diligent, tenacious ... in short, like successful
businesspeople anywhere in the world.
In addition, the authors present three case studies of next-wavers. Michael Ma
abandoned a promising political career when he realized the best he could hope
for was a Volkswagen at 50 that he'd have to return at retirement. Ironically,
after several false starts, Ma found his niche as head of Fortune Automobile
Racing Club, which promotes car racing and counts Volkswagen among its
sponsors.
Liu Qiongying, one of five women business founders among the book's 20, began
selling shoes behind a barber shop in her village near Chengdu when she
finished junior high school. Liu parlayed her success into Aiminger Leather
Goods Manufacturing, a major shoe exporter to Europe.
Hou Zhengyu, after losing his girlfriend because she deemed his monthly 100
yuan (US$16) manager's salary too small, became a contract worker at a Shanghai
shipyard. That experience plus connections back in his village led him to
supplying blue- and gray-collar labor for companies, eventually founding Bridge
HR.
What will interest most readers - aside from Chinese MBA candidates seeking to
emulate their business superheroes - is how to compete against or cooperate
with these emerging business leaders and their enterprises. These issues get
barely 15 pages at the end of the book, recapping the obvious. China's
entrepreneur's lack capital and management expertise, but they know their home
market, have good connections in it, and are more nimble than big companies.
Much of what there is to be learned here about doing business in China with or
against these hungry rivals is buried between the lines. For example, Eitong
Air Express has faced near-ruin several times due to employee theft. Workers
and managers stole equipment, including vehicles, money, software and customer
lists, the last two to start rival firms. Despite opposition to government
involvement in business, many founders benefit from guanxi - China's
ubiquitous system of giving and receiving favors - for loans and vital business
information. Little of what the documents is new or surprising.
The real revelation from Made in China is its unambiguous confirmation
that homegrown individual entrepreneurship has risen from the ashes in China.
Today a native breed of capitalist running dog is thriving (or not, depending
on the judgment of the market), with virtually none of the tin cans of China's
socialist, centrally planned legacy tied to its tails.
Made in China: Secrets of China's Dynamic Entrepreneurs by Winter Nie
and Katherine Xin with Lily Zhang. John Wiley & Sons (Asia), (March 2009).
ISBN: 978-0470-82436-8. US$24.95, 210 pages.
Former broadcast news producer Muhammad Cohen told America's story to the
world as a US diplomat and is author of Hong Kong On Air (www.hongkongonair.com),
a novel set during the 1997 handover about television news, love, betrayal,
high finance and cheap lingerie.
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POEs employed 207 million people in 2005, dwarfing the 65 million working in
SOEs. POEs produced nearly 78% of China's total exports in that year, valued at
almost US$6 billion. POEs also provided more than 75% of tax revenue to the
state treasury.
