Culture versus economics

As a business journalist, I'm a big believer in the power of economics. I'm also not a big fan of culture. Sure, it's fine when it comes to entertainment, but I don't trust culture as an explanation of behavior.

Many habits which are routinely attributed to culture can be better explained by economics. Take, for example, the issue of saving money. According to some people, saving money is a Asian cultural value, or a Chinese cultural value.

But saving money can also be attributed to economic forces -- recent economic problems, combined with current wealth and doubts about the future.

In the United States, we've seen high levels of savings after the Great Depression, for example, and with recent immigrants. My immigrant parents, for example, have a high propensity for saving money and being thrifty. I myself, having grown up in the United States, have no memory of hardship, and few doubts about my future earning potential. This creates a little bit of friction between me and my parents -- my mother routinely reminds me to save money and warns me not to waste it.

To some, this would be an example of the "cultural wars" between immigrant parents and their children. To me, it's just an example of the different economic realities in which we live.

Another example is career choice. My father was very concerned that I grow up to be an engineer. This is common for many immigrant parents -- as well as parents in China and India and other emerging economies. A couple of generations back, most American parents were very concerned about raising children to be white-collar professionals -- doctors, lawyers, and engineers. Personal fulfillment took a second seat compared to long-term income potential and career stability.

When I chose to drop out of the engineering program to follow my dream of being a writer, my parents were very concerned about the risks this career path involves.

In China, I also meet lots of young people pressured by their parents into careers that they don't want. This is often seen as an example of the Chinese cultural value of listening to your parents, or being conservative and not creative in making career choices. But if you go back to the United States in the 1950s -- not to mention the many examples of immigrant families like mine -- the same issues come up. How much risk is a person willing to take on?

I would say that children listen to their parents to about the same extent, regardless of whether they live, depending on how much of an economic impact their parents have on them. Today, in the United States, many parents tell their children to be happy -- to find a career that is fulfilling and rewarding, not just financially renumerative.

This brings me to yet another value that is often ascribed to culture -- the relative importance of personal happiness compared to family commitments.

Again, I feel that the basic issue is economic -- when the family is the primary economic unit, it makes sense to protect it at all costs. In underdeveloped countries, the family takes care of the sick and elderly, protects its members from physical violence, provides career training to children, feeds and clothes its members, provides work, and provides money. In a developed country, governments and private pensions take care of retirement, doctors and hospitals take care of the ill, police departments protect citizens against violence, schools and colleges provide career training, banks lend money, and restaurants and delivery services provide all the food that anyone would want, at any price point.

In a developed country, the role of the family is to provide emotional support -- to ensure that its members are happy and loved.

It makes sense for people in a developed country to ignore the wishes of a family that is pressuring them to do something that would make them unhappy -- including adopting a boring career, or marrying someone they don't love.

In an underdeveloped country, it makes sense to put personal fulfillment aside to take care of more pressing needs for physical and financial security.

In China, as with immigrant families in the US and Europe, the economic reality is changing very quickly -- and personal behavior is changing to keep up.

Ascribing the changing behaviors to changing cultural norms is a mistake, and often results in absurd reactions such as blaming US movies, music and television for the "declining cultural values."

The three stages of China consultants

This weekend, a friend asked me to tell him all I knew about consultants in China -- but to tell it quickly, since he didn't have much time.
My initial thought was to list all the consultants I knew. Management consultants. Business strategy consultants. Market entry consultants. Sourcing consultants. Quality consultants. Engineering consultants. Financial consultants. Human resources consultants. Marketing consultants. If there's a question you have about China, there's a whole consulting industry dedicated to helping you.
Then I suggested that he first check to see how long a particular consultant's been around. In general, a good rule of thumb is that the longer a company has been in business, the more likely it is to be offering something of value.
But then I thought about some of the oldest China hands I know, and I rethought my position.
The thing about China that makes it different from other places -- and what makes it more exciting -- is the rapid pace of growth here.
But as a result, some of the normal rules of business don't apply.
The people who were here doing business twenty years ago are not necessarily the people you need today.

THE WILD WEST CONSULTANT

I know a few guys who were among the first people to come to China. Some adapted with the times, and became very successful, running profitable businesses. Many did not, and are still trapped in the "Wild West" mindset. They see themselves as explorers, risk-takers and rule-breakers. They often go native, marrying Chinese women - or men, learning the language, studying the history and culture. They make much of their personal contacts and connections.

In the big cities, they've become mostly marginalized, hanging out in expat bars and telling stories of the old days. But in smaller cities, where foreign investors are just starting to come in, they may still be influential.

One such consultant even recommends in a book he wrote that foreign businessmen looking to find good local contacts should check out the expat bars.

I have to admit, I love these guys. They tell the best stories. But rather than going to the bars to find a consultant, foreign businesses are probably better off checking with their Chamber of Commerce representative or the city's economic development officials.

THE GOLD RUSH CONSULTANT

Unlike the Wild West consultant, who prides himself or herself on deep local knowledge and connections, the Gold Rush consultants think they're going to strike it rich just by showing up. They learn just enough Chinese to get by, and if they marry a Chinese spouse, it's more often than not a trophy marriage, with English the predominant language spoken at home.

The Gold Rush consultant is likely to have better business skills than the Wild West consultant, but the get-rich-quick mind set isn't very conducive to long-term success. This consultant may also be found in bars, but he or she is wheeling and dealing, not telling long stories of the good old days. Like the Internet dot-commers of a decade ago, these guys are looking for the big score, and often have no patience for the slow daily grind of real business.

In my experience, the Wild West and the Gold Rush guys have little to do with one another. The Wild West guys have no respect for the newcomers, who they think are here just to make a quick buck and have no real interest in China. The Gold Rush guys think the old-timers are crazy old coots. Both might well be right.

THE GROWN-UPS

At some point, even the successful Internet start-ups had to hire grownups to actually run the companies. The Internet was no longer uncharted territory, or a gold mine -- it was just business.

Today, so is China. Just business. In business relationships what counts more and more is the ability to deliver. A friendship might get you in the door, and a good sales pitch might get you that first deal, but in long term what counts is execution. And to do execution right takes serious business skill. For today's new breed of consultants, China might as well be any other country. Meg Whitman came to run eBay after a successful career in traditional retail companies. People used to say that the Internet changed everything -- and then they realized that it didn't.

China has followed a similar path as many other countries and industries and has now become just another global player. A significant global player, yes, but operating under the same rules as everyone else. It's the grown-ups turn now.

The Joys of Being Sued

Frivolous lawsuits are one of the banes of Western corporate life. Lawsuit artists walk through stores looking for puddles to slip in, sue restaurants for the coffee being too hot -- even sue people who try to save their lives during disasters.
The lawsuit artists -- and the lawyers who serve them -- are considered the bottom feeders, the carrion birds of civilized society.
But, like vultures and maggots, they also serve a useful purpose. They have a nose for rotting meat.
In some cases, they go too far, and eat live flesh. In the case of Good Samaritans, for example, there are now laws in many jurisdictions protecting people who make a good faith effort to help others in emergency situations.
But take the example of the $2.7 million lawsuit against McDonald's alleging that the coffee was too hot. It's widely considered the poster child of frivolous lawsuits. But the facts of the case – including massive third-degree burns, eight days of hospitalization, and skin grafts that the victim suffered demonstrate that there was actual substance to the case. In addition, McDonald's produced documents demonstrating over 700 similar complaints. The company also admitted that it maintained coffee temperatures at dangerous levels, higher than other restaurants, despite the fact that it knew that many of its customers would drink the coffee immediately after purchase -- or in cars, when buying at drive-throughs.
The final amount of the settlement was eventually reduced a bit on appeal, but the main consequence of the case is that McDonald's reduced the temperature of its coffee so that it would no longer scald its customers.
One breed of lawsuit artist is the slip-and-fall conman or conwoman. They trawl retail locations looking for wet floors or cracks in cement, then sue the parties responsible.
As a result, the phrase "clean up in aisle six" has become a common refrain for the public announcement systems in supermarkets and department stores around the world.
But here, too, these lawsuits serve a social purpose. For every conman who slips and falls and sues the company for a trumped-up claim, there's now a store that monitors its floors with a keen eye – and any number of real little old ladies are not slipping and breaking their hips.
When I lived in Moscow ten years ago -- again, I'm not commenting about China here -- winters were a nightmare for little old ladies. My neighbors were virtually housebound all winter, since all sidewalks and streets were permanently covered with ice. It was common to find open manhole covers, unfenced construction sites -- and don't even get me started on medical malpractice.
The general feeling was that if you fell down a manhole, it was your own fault for not watching where you were going. So people watched where they walked. This meant that you did not want to walk around at night, or while drunk, or even while engrossed in conversation with a friend.
Civil lawsuits, in the long run, protect consumers.
But, these lawsuits, even frivolous ones, can also protect companies.
A lawsuit might expose staffing problems or safety issues or management malpractice.
A frivolous lawsuit is usually easier to deal with -- since the case has no actual merits, the lawsuit artists is often willing to settle for a small settlement. But it also exposes problems that could lead to a larger, potentially more significant lawsuit in the future.
For example, an employee who sues over wrongful termination may expose a problem with dispute resolution at a company, and may inspire a firm to include a process for mediation in its employment contracts, and, perhaps, a provision for binding third-party arbitration in case of problems that would otherwise go to court.
Lawsuit artists go after low-hanging fruit -- the companies who don't clean up their wet floors. They're an early harbinger of worse problems to come -- or an early warning bell for companies to clean up their acts.
In other words, if you're seeing vultures circling overhead, maybe it's time to get out of the desert and back to civilization.

Corporate Cultural Imperialism -- it's a Good Thing

The usual advice for new managers coming to China has been to adapt, and to learn to do things the Chinese way. Don't bring your expectations and standards to China, the old China hands say. The more time experts stay in China, the more likely they are to argue that China is a unique place, and managers need to understand Chinese cultural norms and mores in order to be effective.

I've always personally felt the opposite -- that international management standards are international standards for a reason, and the more closely a manager adheres to principles used elsewhere, the better off he or she will be.

As far as I am concerned, local management practices are mostly irrelevant -- unless it has to do with legal issues, such as labor contract law or government-mandated holidays.

I used to think I was alone. But now there's new research to support my point of view.

According to a report released by the UK-based Economic and Social Research Council last week (Jan. 18), foreign multinational retailers entering the Chinese market should "keep largely to their own, time-tested management techniques."

The researcher, University of London professor Jos Gamble, interviewed management and staff in eight Chinese cities, in both English and Chinese. His peer-reviewed study included more than 400 interviews with store workers and managers in 22 companies and 2,200 survey questionnaires.

Foreign organizations can provide workers with significant opportunities to prosper and improve their skills, he reported.

He offered the example of Japanese retailing firms, which are very prescriptive and detailed in the customer-relations training they provide to employees.
"The Japanese approach to customer service was particularly innovative in the Chinese context," he said. "Whilst, initially, local customer response was quite negative, it rapidly achieved acceptance as a form of best practice."
He also reported high levels of satisfaction about foreign retailers' human resources methods, even when it came to staff employed in menial or dead-end jobs, he said. Workers reported that even these jobs provided learning opportunities.
"All the evidence suggests that, whilst it may be necessary to adapt to some extent to local conditions, time-tested management practices actually translate well across cultures," he said.
I couldn't agree more.

Many Chinese workers have told me that one reason that they want to work for a foreign company is to learn the international ways of doings things.

I don't blame them. International companies are globally competitive. Compared to domestic firms in China -- or anywhere else for that matter -- they are more likely to encourage open discussion and internal criticism of plans, and hold people accountable to higher ethical and business standards. Good international firms reward people for ability and results, encourage risk-taking and innovation, and focus more on market performance than politics.

Back when I worked in Russia for an major international news organization, I heard from managers that they preferred to keep their bureau chiefs in country for nor more than a couple of years at a time -- any longer, and the bureau chief would start to lose the connection to core corporate culture.

I'm not commenting on the Chinese media environment here, but in Russia in the mid-90s it was common for local journalists to copy information and quotes from local media and use the material verbatim, unattributed, in their reports. Journalists regularly received payments from sources for favorable publicity and ran articles favorable to local officials in order to ensure continued access.

News organizations have problems overseeing their foreign correspondents -- editors in New York or Washington DC are unable to fact-check or manage these correspondents effectively. They rarely have the language skills or access to source materials that would enable them to catch plagiarism, or the contacts with sources that would ensure accurate reporting. They have to rely almost completely on what the foreign correspondents produce.

I knew a couple of foreign bureau chiefs who adapted remarkably well to local conditions. Lifting stories from local press meant shorter working hours. The lack of enterprise reporting was explained away by the fact that they were in Russia -- and reporting was difficult and dangerous. Some of this was actually true -- but managers back home had little way of differentiating laziness from actual problems on the ground.

As a general rule of thumb, the longer a journalist was on the ground, far from the competitive US journalism environment, the more their coverage suffered.

Now, I'm not going to speculate about whether this happens in China or not. As a matter of policy, our publication does not comment on media issues.

But I can say that the struggle against slipping standards is universal in all emerging economies -- and, in fact, everywhere in the world. Whenever a company is best in class, its peers are going to be behind. And the weight of all those average companies will drag on the top performers.

In mathematics, this is known as "reverting to the mean." In common terms, it's simply, "that's how everyone does it."

Fighting against this tendency is a necessity for any high-performing company. When the prevailing practices are even farther behind, as in emerging economies, it only gets more difficult -- but no less necessary.

Movie industry opens up

Thursday night, I witnessed the birth of an industry -- the foreign-made Chinese movie business.

In the United States, we don't think twice about foreigners making English-language movies for American distribution. In fact, some of our greatest producers and directors have been foreigners, and two of our biggest studios are owned by Japanese and French companies, Sony and Vivendi.

In China however, until now, all Chinese movies produced domestically have been made by Chinese companies.

Until now.

In March, China Venture Film's drama "Milk and Fashion" is expected to hit theaters around China. In it, former "Growing Pains" child star Jeremy Miller is the uncle of a young boy, played by Rothstein's 17-year-old son Kyle Rothstein, in a coming-of-age story about ballet and fashion. The movie is filmed in Chinese, with even the Western actors speaking the language (except for Miller). Kyle Rothstein not only speaks Chinese in the movie -- he's been studying the language since he was a small boy -- but also ballet dances.

The movie also stars Hollywood actress Vanessa Branch, known in the U.S. as the smiling British-accented blonde in the Orbit gum commercials. She also played the woman who slapped Johnny Depp in all three Pirates of the Caribbean movies. She speaks Chinese throughout the movie, and, in fact, is currently acting in the Chinese drama "Border of Love," filming now.

The movie is set in Shanghai and in rural Yunnan province and was made for just $1.35 million. Jay Rothstein estimates that it would have cost over $8 million to make the same move in the U.S.

It wasn't easy to get the movie made, he admits, but it was a labor of love for Rothstein. For example, getting government approval to distribute in China took six months - the final go-ahead came two weeks ago.

It was a true multi-national effort. In addition to Rothstein, who is American, the film was backed by a Japanese investor and by China's Yunnan Film Studio. The actors were American, Dutch, British, Chinese, and other nationalities, while the director, Roy Chin, hails from Taiwan.

I first met Rothstein and his family four years ago, and he was already talking about the movie. The script has gone through several revisions, and the launch date has been postponed more than once.

It took a lot of commitment to get the movie made, Rothstein told me. A good sense of humor about the process probably didn't hurt, either.

"Milk and Fashion" demonstrates that it doesn't take a big budget, or a big-name producer, to do ground-breaking work in China. Sometimes, all it takes is a man and a screenplay.

Labor Law Losers

A new labor law went into effect at the start of the year, making it more difficult -- and expensive --to fire employees. The law also specifies increased additional costs to employers, including minimum wages, overtime and benefits payments.

According to the Associated Press , Dongguan’s Taiwan Merchant Association reports that that the cost of doing business in China will rise by as much as 20 to 40 percent.

Calvin Chang, general manager of Shenzhen’s Jinghua China Investment Consulting, told Reuters that he expects labor costs to rise by 8 percent as a result of the law. He predicted that companies may move operations further inland in order to remain competitive.

There have been massive labor abuses in China. The brick-making slavery scandal was the worst of all those which have come to light this year, but there were also widespread reports of non-payment of wages, forced overtime, child labor, and other abuses.

But passing a law is one thing – implementing it is something else entirely. Many of Chinese laws, including guidelines about minimum wages, are frequently ignored. As the slavery scandal illustrates, local corruption and loose enforcement can make even the worst abuses possible.

There are two major problems with this law. One is the lack of detailed implementation processes. The other is selective enforcement.

Some companies feel that they can get away with flouting labor laws because of their geographic locations, importance to the local economies, or relationships with officials or enforcement authorities. And if a law is not well written, companies will try to find loopholes to get around the law.

Many companies, for example, spent the last months of 2007 forcing long-time employees to sign new contracts – or temporarily laying them off – in order to evade some of the requirements of the new law.

Finally, regulators may have overlooked one of the most basic laws of all – the law of unintended consequences.

If a law specifies special protections with employees who have stayed with an employer for at least ten years, then that creates incentives for employers to file marginal employees just before that magic number is hit.

In effect, the law will hurt those very employees that it was designed to protect.

Finally, some companies may leave China altogether – and the loss of jobs will be the worst blow to labor.

One of the best advantages that China had, in the battle for economic growth, has been that the government has been mostly immune to popular political pressures.

There are times when a government must step in and protect the rights of its citizens, and create an even playing field for all businesses.

But when a government leans too heavily towards protecting the rights of workers – as some European countries have done – the result is economic stagnation. Companies become reluctant to hire staff if they know it’s going to be difficult to fire them later. Constrains on working conditions and overtime hours can be over-protective – hindering innovation and competitiveness.

Passing a new labor law is a high-profile act that will help appease a nation of laborers toiling under unjust conditions. It is a more popular alternative than making small, incremental steps towards better enforcement of existing laws.

Unfortunately, the companies most likely to comply fully with the new law are foreign-owned export-oriented manufacturing firms. They are the first to come under the scrutiny of both local regulators and foreign activities. But these are companies that often offer the best jobs, and the best working conditions, and help build China’s export base.

These companies are also the most price sensitive – they came to China because of low labor costs.

Where will they go next?

The new law is creating an opening for other emerging countries to step forward. It is also creating more opportunities for China’s second- and third-tier cities to compete for this business.

Personality Profiling

There are many first-time entrepreneurs in China -- in many respects, Shanghai is now what Silicon Valley used to be at the height of the dot-com boom.
As a result, there are many seminars on how to actually go about starting up a business, and I try to make it to as many as I can.
One of the more valuable pieces of information I've picked up has been about using personality testing to identify core strengths among senior staffers.
In China, these tests can be particularly useful because certain personal characteristics sometimes don't translate well across cultures.
For example, last summer I hired a Canadian manager to help run China operations and do some marketing. He was an outgoing, upbeat person -- especially compared to Chinese staffers. I was surprised when he spent most of his time on busy work, such as producing a very detailed -- and universally unread -- employee manual.
It's nice to have policies in place, but the weeks of effort could have been reduced to a page of bullet points and a staff conference.
Marketing was nonexistent, employees were not managed, and a whole month of sales calls resulted in not a single sale.
On paper, based on his resume and educational background, he seemed perfect for the job. The problem became apparent shortly thereafter, after I had all my employees take an online Myers Briggs Personality test from Similar Minds. I like this one because it doesn't just tell you that you're an extrovert or introvert -- it tells you how far along you are on the continuum.
My employee was very much on the extreme extrovert side of the divide. He was also more detail-oriented and practical -- "sensing" -- as opposed to creative and visionary -- "intuitive."
In other words, he had the exact opposite personality type than that best suited for sales.
The fact that he was in China made him look outgoing by comparison to my other staffers, who had spent years in the Chinese educational system learning to be quiet and inconspicuous. He also looked like a visionary compared to people forced to channel all their energies into rote memorization rather than creativity.
But when push came to shove, he reverted to type -- focusing on minute details, and working by himself at his computer.
One interesting application of this test is spelled out by frequent visitor and speaker Roger Hamilton, author of "Your Life, Your Legacy." Hamilton takes the basic Byers Briggs test and applies it to the question of entrepreneurship. For example, if you're an extreme introvert, but highly creative, you may want to follow in the footsteps of entrepreneurs like Ray Crok, who created the McDonald's system. If you're highly creative, but halfway along the extrovert-introvert axis, you might want to follow in the footsteps of people who create businesses, like Bill Gates. Hamilton identifies eight basic types (he ignores the one where a person is in the middle along both axes). My own type is heavily extroverted, but about halfway between the practical and the creative -- well, a little on the creative side. According to Hamilton, that puts me in the same neighborhood as Jack Welch -- someone who is good at managing companies.
Another personality test offered by a recent visitor to China was based on spending patterns. According to Ted Prince, author of The Three Financial Styles of Very Successful Leaders, the best manager can come up with innovations, but hates to spend money. The worst business leader, he says, is one who is conservative about innovating, but spends money like there's no tomorrow. That guy is likely to quickly drive a company into the ground. My business manager (who is extremely practical) prefers saving money to spending it, and will negotiate deals and contracts down to the last penny. She is also conservative about change -- she wants to see a good case spelled out first. I, on the other hand, will readily spend money on anything and everything -- and am always ready to try new things, start new companies, and embrace new management fads. Most people however, fall somewhere along the diagonal, he says -- they're either conservative on both counts, or are both innovative and free-spending. These companies will always be struggling to balance growth and spending.
Here, again, cultural differences may mask personality differences. China is a nation of savers. But people who save money out of necessity in their personal life, may turn out to be big spenders when under the pressure of running a company. Under stress, or at times of change, people are most likely to revert back to their core personality types, Prince says.
Personality testing is not a complete solution to cultural differences, of course. But in companies like mine, where major personality aspects can be hidden by cultural backgrounds, personality testing can be a useful tool to uncover mismatches between employees and their responsibilities -- or shed light on underlying causes of conflict.