In the past quarter century, China has undergone a dramatic transformation to emerge as an immensely powerful force in the global economy. And yet, to many Westerners, it is a paradox. Once virtually closed to the world, it is now the globe's third largest trading nation. Once dismissive of the indulgent and materialistic West, it is a now vast and ravenously hungry market, with more than a billion consumers eager to buy. Still ruled by Communists, China is nonetheless a major international investor, the second-largest owner of U.S. Treasury debt after Japan. Already the world's fourth largest economy, economists predict it is likely to be the biggest on earth in less than another quarter century.
As a market-driven economy, China is a mere youth—and it is as impulsive and headstrong as any adolescent. Growth has been marked by lurching shifts from boom to bust. Government regulation is difficult to navigate and often contradictory. Rip-roaring growth has enriched hundreds of millions but scarred the environment. China has granted its citizens a degree of economic freedom, but it struggles with political freedom.
Indeed, China is an economic experiment without precedent on a scale that is unimaginable. Over the next decade or longer, China, like the proverbial pebble in the pond, will affect virtually every industry—indeed, every company—on the planet, in one way or another. No wonder Jeff Immelt, CEO of General Electric and Dartmouth '78, has said that every company in America has to have a strategy for dealing with China.
At the Tuck School, China is, understandably, a hot topic among students and their professors, although its raw essence is almost impossible to capture in a classroom. "We have the responsibility to prepare students for careers in a truly global economy," says Joseph A. Massey, professor of international business, director of the Center for International Business, and former Chief U.S. trade negotiator with China. "To compete effectively, our students have to understand not only the economic challenges of China but also its legal, political, historical, and cultural realities."
In his Doing Business in Asia course, and in others, students are plunged into a world of quirky capitalism. They learn about the fluid lines between the worlds of politics and business in which today's big-city mayor may be tomorrow's telecom CEO. By studying the history of China, Tuck students come to understand the roots of its deep-seated distrust of the West. And Tuck's courses in new business ventures arm those who seek to make their fortunes in the so-called Middle Kingdom. "Tuck awakened that entrepreneurial spirit in me," says Li Chen T'06, who hopes someday to return to her native China to start her own venture. "Now I have the tools and skills to fulfill my dream of creating my own business."
From this wild economic frontier come the voices of three veterans, all graduates of Tuck. Cecilia Yang T'88 is vice president of regional sales development for Avon Products Inc., the cosmetics giant. Jennifer Moyer T'98 is a human-resources director in Asia for Goldman Sachs, whose headquarters are in New York. Giles Chance T'85, a Fulbright scholar, is a founder of Evolution Securities China, an investment bank with offices in London and Shanghai.
All three offer keen insights on the challenges and opportunities they have encountered in China. They represent very different corners of the business world, but on one key principle they all agree. Doing business in China is hard—often frustrating—work. But, tellingly, not one would have missed the chance be at the forefront of this business revolution.
Opportunities Without Borders: Cecilia Yang T'88
In the mid-1990s, Cecilia Yang was offered an extraordinary opportunity: Mary Kay Inc., the cosmetics giant, wanted her to help it launch a
new venture in China. Although she had been working for multinationals in Asia since graduating from Tuck, she had never managed a business
in mainland China. She had no experience in the cosmetics industry. She was unfamiliar with the famously girly corporate culture at Mary Kay,
where top saleswomen were rewarded with diamonds, minks, and Cadillacs. And, to make matters worse, Yang concedes with a laugh, "I wear
very little makeup."
Despite her qualms, Yang took the job—and found herself thrust into a brave new world. Although born and raised in Taiwan and fluent in Mandarin, she was quickly overwhelmed by the challenges of accomplishing even the most basic tasks in China. She had to find an apartment, a driver, and a suitable school for her seven-year-old daughter, as well as secure office space and supplies for the new company and all the necessary government documentation to start a new venture. "Ground zero," she recalls. "That's where I was starting."
All the while, she fretted about her ability to sell the quintessentially American concept of Mary Kay cosmetics to women in China. Like Avon and Amway, Mary Kay recruits independent beauty consultants to sell its cosmetics to customers. (Consultants buy at wholesale prices from the company and sell at retail prices to women.) "China was unmapped territory," she recalls. "I wanted to believe that all women belong to a sisterhood, that we all share the same desires to be beautiful, be confident, be independent...but, at the beginning, I was not absolutely sure this would apply in China."
Yang need not have worried. Chinese women flocked to Mary Kay, lured not only by the chance to operate their own businesses but also by the company's inspirational message of empowerment and independence for women. Mary Kay's down-home approach, which has been so effective in Small Town, U.S.A., since the company's founding in the 1960s, also resonated with housewives and working women in Beijing and Shanghai. (Mary Kay did make some adjustments to its business culture as it expanded internationally: The company slogan of "God first, family second, and career third" was changed to "Faith first, family second, and career third.") "Opportunities for women at the time were very limited, mostly to secretarial work," Yang recalls. "At Mary Kay, there were no limits. A hard-working, ambitious saleswoman could make a great deal more than a secretary."
Over the next few years, Yang established training centers in the largest cities in China, including Chengdu, Shenyang, Shanghai, and Beijing. There, she educated women in sales techniques and held spirited sales rallies. In China, as in the U.S., Mary Kay consultants offer free makeovers to women to teach them about the company's cosmetics. Yang also developed a program of enticing incentives for saleswomen. That was a challenge. In the U.S., Mary Kay's highest achievers are rewarded with pink Cadillacs, which would have been prohibitively expensive to import. She considered awarding pink bicycles but rejected the idea as too utilitarian. So Yang opted to award her top saleswomen with pink cell phones—a much-envied status symbol at the time. "A pink phone was much more exciting than a car," she recalls. "It was something to dream about." (Later, Mary Kay also offered pink cars to top producers, but they were a more modest sedan made by Volkswagen.) By the time Yang left Mary Kay in 1997 to take a job with another multinational, the company had 10 branch offices all over China and a sales force of 15,000.
After several years working for Revlon in Asia, Yang was offered a job this spring by a former competitor: Avon. In her post as a vice president of regional sales development in Asia, Yang will be promoting the company's cosmetics in several countries. Like Mary Kay, Avon has been in China since the mid-1990s, and it is among the most respected brands there.
Today Asia poses different challenges for Yang. Among the most worrisome: a booming economy has made hiring intensely competitive for foreign multinationals. With more job opportunities for women, Avon will also have to push deeper into more remote areas to find women eager to sell its cosmetics. "Ten companies will be trying to hire one individual," she says. "Recruiting and retaining talented workers isn't just about big money anymore but also about helping them develop their talents so they can be successful in their careers."
Yang has some words of wisdom for companies eager to do business in China: "You will trump their competitors in the hiring game if you offer well-organized programs for advancement to workers," Yang says. "There's no shortage of good business ideas in China," she adds. "But there is a shortage of good business skills—and the best workers will want to learn these skills from companies that are fully committed to China."
Bridging Cultural Gaps: Jennifer Moyer T'98
As executive director of human resources in Asia for Goldman, Sachs & Co., Moyer sees vividly the challenges that arise when people from vastly
different business cultures try to work together. Active in China since the early 1990s, Goldman two years ago launched a joint venture with Beijing
Gao Hua Securities to press more deeply into what is regarded as one of the most promising centers of wealth and investment activity in the world.
Thanks to rapid expansion, Goldman's Asian workforce now numbers more than 3,000 and includes Americans, Chinese, Koreans, Japanese, British,
and other nationalities.
All of which means a big challenge for Moyer, who is working hard to bridge the gaps among cultures, especially the chasm that divides the Chinese and the Americans. There's plenty of work to be done. Goldman's hyperaggressive style of deal making can be not only alien but sometimes offensive to the Chinese. "Our Chinese co-workers are stunned by the way we conduct our conference calls," she says. "We'll have 10 people on the phone. All the Americans are talking, kicking around ideas, challenging and interrupting each other. We Americans tend to be very direct and very confident—even when we are only partially sure we are right."
Goldman's Chinese partners have asked Moyer, "Do we have to be more Western to succeed at Goldman?" Moyer's answer: no. Goldman's management philosophy is built on teamwork—and that means recognizing the quieter talents in the group. "We have distinct communication styles," she says, "but we have to learn to appreciate the differences. After all, the best idea isn't always the one expressed the loudest."
In the three years since she was named to her post, Moyer has seen a gradual lessening of tensions among disparate cultures at Goldman. That's partly because employees have had time to get to know each other and partly because many of the new hires in junior and senior management are Asian, which has, to some degree, molded a unique new culture at Goldman Asia. "We still have a lot of work to do," Moyer says. "We want to preserve the best of the Goldman culture while integrating the local cultures into the business."
For Americans eager to land a job posting that will let them get in on the gold rush in China, Moyer has a few words of advice: get real. "We used to have to sell China" to ambitious young bankers, Moyer recalls. Not any more. Now, she says, Goldman is flooded with requests from employees and new hires for postings in China. "China offers the hottest action in the world," Moyer says. "But if you aren't fluent in Mandarin, you probably don't have a chance to get in the door."
Advice to Western Clients: Giles Chance T'85
As a student at Tuck in the mid-1980s, Chance got more than a good education the summer he worked as an intern at the World Bank in Washington, D.C.
There, he met the woman he would marry. For their honeymoon in 1988, Ying Fang took her new husband home to her native land, China—and, for the most
part, the pair never came back.
Fascinated by the pro-business fever stirring in China, Chance launched a company to advise Western clients in their efforts to sell their wares to the Chinese. "People were still wearing Mao suits at the time," he recalls, "but there was no doubt that they wanted to move forward and join the rest of the world." Among Chance China Ltd.'s clients were some of the world's most prominent multinationals, including Rolls-Royce, Volkswagen, retailing giant Marks & Spencer, Barclays Bank, and Vodafone Group, the world's largest mobile telecommunications company.
Those were extraordinary times for China. Eager to rev up its economy, China's leaders had just injected it with a dose of capitalism—and the treatment sparked an entrepreneurial frenzy. Chance was in the middle of the fray, helping his clients ride the hair-raising boom and bust cycles. Among other things, he brokered deals that brought a wide array of high-tech equipment into China, including wastewater pumps and conveyers.
One of Chance's clients, Vodafone, came to China to help establish a mobile network in that vast country in the 1980s. At the time, cell phones were a luxury, a status symbol for only the most powerful government officials and business leaders. Shanghai Telecom had a single base station and served 15,000 customers; today, it has hundreds and a customer base of 15 million. "Chinese companies would buy them for $500 from the West," Chance says, "and resell them for $5,000." After Chinese manufacturers acquired cell-phone technology in the late 1990s, the market collapsed, driving scores of companies out of the business. Vodafone sold its business before the bust.
In deal after deal, Chance learned critical lessons about working with the Chinese. "An open mind is the most important negotiating tool. Bullying the Chinese into Western ways of doing business is a recipe for disaster. The Chinese have a strong yet delicate sense of honor in business. Negotiate aggressively but fairly. Personal relationships are very important. The Chinese are cautious to start but loyal in the end, if the deal is fair and satisfying."
In 1992, Chance brokered a controversial $5 million deal that brought advanced submarine communications capability to the Chinese navy. Germany, France, Australia, and Great Britain were concerned the technology would bolster China's military strength. Indeed, six months after the deal closed, Chance received a call from an official at MI5, Britain's counterintelligence and security agency, who sought to discuss the deal with him. Chance defended the sale, arguing that the West's doctrine of free trade barred restrictions on selling such technology to the Chinese. "Open trade is the key to harmony," he says.
In 1996, Chance sold the advisory business. More recently, Chance and his wife founded an investment-banking firm, Evolution Securities China, to help Chinese companies seek new sources of capital in global markets. The company has offices in Shanghai, Hong Kong, and London, and next year it plans to open an office in New York. "China's expansion into the world will require a well-managed network of business relationships," Chance says. "The Chinese are at a disadvantage for such things now because of their relative inexperience with the West. We act as a bridge."
One recent noteworthy deal: Evolution Securities helped EBT, a retailer of mobile telephones, go public on London's Alternative Investment Market. EBT raised $18 million in two offerings there in the last two years. Says Chance, "London offers great opportunities these days to Chinese seeking to raise capital other than through the NASDAQ." Chance says the London markets are more appealing to Chinese companies in part because they are less regulated. Corporate-reform laws, such as Sarbanes-Oxley, have made it more costly for young companies to list on stock exchanges in the U.S.
From his perch, Chance sees great opportunity—and danger—as China takes its place as a global powerhouse. Newfound wealth has given the Chinese an appetite for media, entertainment, and luxury goods, creating new markets. Still, China's lack of an established tradition of business law poses problems for Westerners, particularly in the enforcement of contracts and the protection of intellectual property.
China's lack of an effective bankruptcy law also makes it difficult for struggling, debt-laden firms to reorganize while protected from creditors, as they are in the U.S. under Chapter 11. That means some insolvent firms struggle to survive, protected by the state from collapse. "This is obviously a system that cannot be sustained," Chance says. "Capitalism requires that only the strongest and the best survive the competition."
Chance sees a world transformed over the next few decades by the emerging giant in Asia. "This is only the beginning for China," Chance says. "The world hasn't even begun to fully grasp the impact it will have over the next few decades."
Deng Xiaoping once memorably described China's journey from poverty to world power as "crossing the river by feeling the stones." It was an apt metaphor coming from the tiny, chain-smoking man who injected that jolt of capitalism into China in the late 1980s. When China was a small player on the world economic scene, its missteps and near-falls were of less consequence. Now, much is at stake as it seeks sure footing to cross that river. Tuck's pioneers were among the first to brave the waters of the new China. In their stories is the wisdom of experience.
