Clissold gets the China bug when he first travels to Hong Kong as a young man. What others describe as utter chaos becomes instead a fascinating challenge and paradigm of living:

I’d go into a restaurant and they’d tell me that there was no rice or I’d go to a bar and they’d pretend to be out of beer. I even found a restaurant in Xi’an that closed for lunch. But after a while, I learned to probe and question, cajole and persuade — and never to give in! So I barged into kitchens in restaurants to find something to eat and went upstairs in hotels in search of an empty room….Even going to buy vegetables was a challenge but I sensed a rapport with the people I met; it was almost as if they enjoyed the game of wits and they often gave me a laugh or a smile once they finally gave in. I never felt any malice from them; it was more like a bad habit that no one seemed able to break.

Clissold was, in essence, spellbound by the country, as most aspiring “Old China Hands” usually are. So much so that he found himself bored with his stomping grounds of London. In a desperate attempt to re-engage with China, he tries to persuade his managers to set up an investment office there, but ends up being all but written off as a nutcase. There was only one thing for him to do: quit his job and go to China to study Mandarin.

As the saying goes, be careful what you ask for. Just after the Tiananmen Square massacre, China warns against “spiritual pollution” making those few brave foreign souls on Chinese campuses — such as Clissold — largely ignored by the student population. Clissold’s foray into a life of Mandarin study is also short on creature comforts, from monotonous meals of cabbage and rice to a grubby winter existence of few hot showers, little heat and just-washed jeans that freeze instantly.

After a year of studying, shrinking finances force him to find work. As luck would have it, his former employer in London — Arthur Andersen — is hiring: they need someone to help investors find worthwhile projects in China. And so begins Clissold’s journey into the unchartered territory of financing the new economy.

He assembles a team to help him along the way: Pat and Ai Jian. Pat is a larger-than-life career banker who made a name in investment in Hong Kong and sees opportunity knocking in the great frontier of China. Ai Jian is an “ex-Red Guard and forced-peasant-turned-bureaucrat” relegated to a desk job at a hotel after getting into some trouble at Tiananmen, but he’s hungry to make a difference and has the contacts to prove it.

Working through Ai Jian’s contacts and beyond, the team travels across China, from the rivers of Sichuan to the frozen oil fields of the Northeast border with Russia, in search of investment opportunities, and discovers a hidden and sometimes perplexing world. There are mountaintop military factories looking to transition to civilian goods with unexplained colossal explosions in the background, and elaborate drunken banquets with high-ranking government officials where animal genitalia is a delicacy.

After over three months of traveling to visit factories across China — and days that “ended at one or two in the morning in the upstairs room of some awful karaoke bar with cracked mirrors and faded Christmas-tree decorations Scotch-taped to the walls” — then it was a matter of getting the investors on board. Pat introduced a number of interested Wall Street money managers to the team and, following several tense meetings in China, they eventually agreed to a deal: $158 million to be invested in manufacturing plants throughout China as joint ventures. Contracts were signed and money was wired to their chosen partners in China.

This is where the fun begins — not for Clissold, but for us — when every imaginable thing that can go wrong does. The businesses start falling behind budget, and closer investigation reveals more problems than the team bargained for. Millions of dollars disappear overnight, unaccounted for (in one case secretly laundered to unknown offshore locations). New unauthorized factories spring up, some as direct competition to the joint venture, and others manufacturing products that investors didn’t approve. Reckless managers infest the factories, threatening complete shutdowns or utter chaos, and resist any extermination attempts. And then there are the grossly unqualified products, such as where a beer factory churns out a bottle with brown liquid inside and the words “soy sauce” scratched out on an old label.

But it isn’t the situations that make this book fascinating — it’s how Clissold and his team responds. In doing so, Clissold ends up making every mistake imaginable and, from our retrospective viewpoint, the results are quite often nothing short of hilarious. It all comes down to assumptions:

Wall Street’s theory of “private equity investment,” investing in private companies like we had done in China, was based on two principles. First, that the system of law and other controls are reasonably effective in dissuading business managers from helping themselves to the cash, and second, that a management team will work hard over long periods for clear incentives. Under these conditions, the theory goes, the management team can be left reasonably free to run the business and report to a board of directors that sets budgets and reviews progress. We had applied this model in China — and it was obviously not working.

His egregious mistakes become lessons for the rest of us as he and his team scramble to bring order back to their nascent investment projects. Clissold battles with bankers, the legal system, the anticorruption bureau (which famously asks for a car and money before providing assistance), complicated personalities, misplaced employee loyalty, and hidden assets. If we pay close attention (after wiping our eyes from laughing so hard) we’ll be the wiser next time we set foot in China.

Even while we have a good time at his expense, Clissold teaches us a wealth of knowledge about China. Clissold has a passion for Chinese culture — a passion so deep that, at the nadir of his misadventures in China (just as he is about to turn his back on the Middle Kingdom) it beckons him once again to this rich country. He graciously shares cultural anecdotes, a primer on the beauty of the Chinese language and delightful insights into what makes China so fascinating for outsiders. With Clissold as your guide, you come to peel back the layers of this country, seeing beyond the grueling banquets and puzzling bureaucracy, and are left with a sense of respect and admiration for a country that we can only hope to understand and appreciate, not conquer.

Here’s Gary:
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One of the reasons many companies have hesitated to hire Chinese national employees is their fear that they might one day suddenly up and leave, returning to their homeland, never to be heard from again. As I hope to show in this short series of articles, this fear should not drive hiring practices. I have always believed that the best course of action is to always hire the best person available for the job and work through the details and lifestyle issues to the benefit of all.

When Xiaodong Yang announced to our software development company that he was returning to China in August, 2005 to once again be near his family, we could have taken the news as very negative. He had been my student at the Weatherhead School of Management, was one of our first four employees, had successfully headed up major projects for us with Goodyear, Penske Logistics, M.G. Maher, and others. He had invented our Blended Offshore Software Development Methodology and had exercised it with 100% success for more than a year. He had become a leader, a friend, a confidant, and he had FINALLY achieved a consistent proficiency at the English language!

We could have taken it badly indeed but instead, we chose to accept his personal needs as our own and dedicated ourselves to making the transition beneficial to all. This was quite a commitment for a firm that was then under $3M in annual revenue with fewer than 20 employees. Xiaodong’s departure to his homeland was going to be a significant loss but we were committed to retaining him as an employee and doing everything we could to see him prosper with our company in China at the same pace he had grown here.

Our first challenge was to team Xiaodong up with another highly trusted and valued leader in the company so he would have an unbroken chain of connectivity to the company during his transition. Dave Brumbaugh, another of my former students, was selected to head up this effort. He worked closely with Xiaodong on several projects in the six months before his departure and spent a lot of recreational time with him to make sure the quality of communication was as high as possible.

This initiative has had a significant dividend as the two of them are still valued technicians for the company and staunch friends. They have jointly managed over fifteen high-profile software development projects for companies such as Chapura Software, Thompson Engineering and American Greetings. The initiatives managed by the two of them represented over 15% of our company’s total profits…and Xiaodong is STILL batting 1.000 as he has not had a single offshore development initiative fail using his model!

Our second challenge was to give him a proper leadership role in the company. Our goal was to design a position that would simultaneously provide him with the level of influence he is worthy of and provide the company with clear, unencumbered access to him so that influence would flow freely.

In the next article, we will detail how we accomplished, and are still accomplishing, this goal.

—
Gary Baney
CEO
Boundless Flight, Inc

Wells: A little more than 65, around 75.

Jocelyn: Okay. And including in the China market, such as Beijing and Shanghai. I’d like to talk to him today about international communications. Gary and I were just discussing Starbucks and an interesting point about…that you have to be careful about the kind of message to a country when you’re trying to move your brand into that market. Right?

Wells: Good morning, Jocelyn. I think it’s critical for any company moving into a global market, an emerging market, is to keep in mind cultural sensitivities. Okay? Of all US companies, Starbucks is generally the most alert and sensitive to such cultural issues…but lost sight of that with their decision to accept an opportunity to put the franchise inside of the Forbidden City. It’s one thing to install a Starbucks or any other American fast food restaurant in a shopping plaza, in a business center where there’s high traffic. It’s another to install what could be considered a foreign invasion in one of the most hallowed sites in all of China, the Forbidden City.

Jocelyn: Right.

Wells: The larger point here is for the global company building into an emerging market. It’s not enough to have a proprietary service that is in demand, you have to understand the cultural sensitivities. For China, for India, for other countries as well, these are countries that have for decades, for centuries were ruled and subjugated by foreign powers. They have long institutional memories. While they may not go looking for slights, perceived or real, they are very aware of slights as they see them. So the decision to install a Starbucks inside of Forbidden City couldn’t be taken any other way than something as an insult and somewhat as a slap in the face. I think Starbucks has handled the situation quite well, to their business savvy, some companies perhaps would not. I doubt they would make that mistake again either in China or in someplace else.

Jocelyn: Yeah, it’s interesting. I think it’s a great example of what can go wrong when you don’t think about how the media or how the public can perceive the message, maybe covert or overt, that your move in an international market may imply. And maybe, I was wondering if you could tell me some other examples of the challenges that a company might face when they’re trying to establish themselves in another country, some examples that you’ve seen from your own work.

Wells: I think if you’re a global company and you’re looking to establish operations, if you see a market for your product or service in central market countries Brazil, Russia, India, China…you have to understand the market forces, but also the culture sensitivities. Also political issues as well. Most companies will look at China and India as probably the two most important markets or two of the most important markets. Very different, very differently organized in terms of their politics. One of course is the People’s Republic of China is a Communist government. More of a market economy than ever before…but still run by the Communist party.

Jocelyn: Right. They call it – what is it — Capitalism with…no it’s…Socialism with Chinese characteristics, I believe.

Wells: And I think that China, to its credit, learned a lot by watching the mistakes that Russia made. Look at India, India is normally the world’s largest democracy. It’s a very messy democracy. Even though that’s a dichotomy when you talk about democracy as messy, it shouldn’t be. However, in India, there was such difficulty pulling the country together some sixty years ago when the British left, that I think a lot of the princedoms, fiefdoms, empires if you will throughout India were given considerable autonomy but the states inside India have considerable autonomy instilled. If you’re Microsoft, and this is a real example, if you’re Microsoft and you look to expand operations throughout India, at the same time you do understand the importance of helping the country and its people in a land where poverty is ripe….For example, the Gates Foundation, the Bill and Melinda Gates Foundation sends money for helping a variety of schools there. But in one state, the governor…thought that Microsoft was too much of a monopoly, and instructed the schools not to use Microsoft Office. Despite the fact that the company had products that were much in demand, had through its foundation, contributed a considerable amount of money to easing poverty and improving the schools, [that still was the governor’s decision]. Microsoft, to its credit, also reacted specially by making sure there was even more in the way of free software and free education to this particular state as well, and the governor relented. But that’s the sort of issue that a local company faces there and I’m afraid that not many – outside of a Starbucks or Microsoft – are as alert to these issues as they should.

Jocelyn: Sure. You know, that makes me think about how, you know, you talk about autonomous regions in India, you know, of course China has quite a few of its own. Like Xinjiang is an example of an autonomous region. Of course, countries such as India and China, they have thousands of years of history of these regions operating as just separate states. And each has its own culture, its distinctive identity. A lot of times, we come into a market, we assume that that market is just, you know, it’s all one homogenous being, you know, it’s all what we see in Shanghai or Beijing or in the case of India, New Delhi.

Wells: Particularly in a market as gargantuous as China — so many regions, so many cultures, languages or dialects – it is absolutely incumbent on any company…consumer products, business products – to understand the cultures where they establish operations.

Jocelyn: Right.

Wells: If you’re in the north, you’re in the south, it’s a much different operation. You’ve got to be aware of which dynasty ruled going back centuries, you’ve got to be very alert to not just the current issues but the past issues as well. It has an impact on how you’re perceived in the community, it has an impact on your ability to recruit employees for a region in China as well. It’s a huge issue for companies moving into China or India. The war for talent is acute. If you want to attract the best and the brightest, to borrow a phrase, then those people have to look at you as a tremendous opportunity. And not just to join your organization, but to stay with your organization. They have to see that there’s opportunity for them to grow. You also have to be well-regarded, well-respected in the community because they have to save face in the community as well.

Jocelyn: Sure.

Wells: If you don’t have a good reputation in the community, if you’re not seen as contributing to the community, you may have a difficult time even further attracting, much less retaining, employees.

Jocelyn: That reminds me of last year when you spoke at the [Going Global] panel and that was something that you had emphasized, was the internal communications in a company, correct? And that’s something that a lot of companies who go global, they often overlook this small piece of the puzzle that can be so important in perhaps, as you said, retaining employees and reminding people of the value they get from the company.

Wells: It’s actually reminiscent of the story over centuries about workmen in France. One of whom is asked what he’s doing, says he’s cutting stone. Another is asked what he’s doing, says he’s mixing concrete. Another is asked what he’s doing and he says “I’m building a cathedral.” He’s got a much larger vision and he’s part of a larger team. And if you’re establishing operations in China, or in India or elsewhere around the world, it’s not an isolated facility. Those aren’t people who work in isolation. Those are people who are part of a larger team. They will feel much more engaged if they understand they are part of a team which means introducing them – perhaps electronically, perhaps personally – to others on the same team, either in the same country or elsewhere around the world as well. It’s hugely important and I think too many companies miss out on that too.

(To hear more about Gary Wells’ views on international communications and China, listen to our full podcast. Total time: 18:32….WARNING – this is not NPR quality on the recording side, but it’s a great conversation.)

(Never mind, of course, the fact that networking — or rather WHO you know — is often what gets you in the door. But I digress…)

The point here is, we can’t imagine a workplace that encourages the hiring of friends and relatives of employees.

But if you’re setting up an office in China, you should imagine this kind of workplace — and cultivate it. Why? Because it could mean the difference between retaining and losing good employees.

My former employer, Global Sources, proudly employed a number of prominent couples. My production manager and our IT manager. The client service center manager and a big sales manager in Hong Kong. Two HR managers. As for friends, while I can’t speak for the entire company, just about every single artist in our department could be traced back to one fellow. Meanwhile, our HR department provided hefty monetary incentives for recommending people to work at the company — a sort of employee-referral affiliate program, if you will. This policy was drilled into our brains through e-mails and department meetings, lest we ever forget the potential rewards.

Companies such as Global Sources are banking on one immutable aspect of Chinese culture — loyalties lie more with your friends and relatives, not necessarily an organization or company.

Of course, that can work against you. One of Global Sources’ largest competitors, Global Market, was started by an Global Sources account executive who walked off with a healthy rolodex and a few coworkers.
So what does that mean for you? Three words: relationships, relationships, relationships.

Hire people based on employee referrals — and provide incentives to encourage these referrals.

Promote friendships and relationships within the workplace. Provide ample social outings, long/short-term trips, exercise clubs, and anything else you can do to make it a family atmosphere. Global Sources created a tennis competition that encouraged employee exercise and camaraderie.
Go a step further by offering value-added training opportunities. At Global Sources, we offered after-work English classes.
Remember, ties to family and friends will always trump your company, no matter how good you are; if family and friends are with the company, chances are your best employees will stay.

Watch relationships. Personal dynamics, if you don’t pay close attention, could mean disaster for your company — especially if too much power gets in the hands of one manager. Make sure you’re continuously reaching out to your employees in a personal way. What you don’t know or notice might hurt you.