The China Entrepreneur

FA: You were born in Spain, speak five languages fluently, including Japanese and Chinese, and you have an MBA from the Wharton School of Business as well as a Masters in economics from Shanghai's Fudan University. You came to China as a student and you've been here since 1996. Why aren't you earning huge sums of money at, say, Citibank, instead of getting a salary which you say yourself is set at Chinese levels?

TCK: The real excitement about China was the opportunity to learn. I'd already spent three years studying and working in Japan, but I felt I had reached the point of diminishing returns. I was young and energetic, and wanted to try China. As for my salary, it's comparable with my Chinese colleagues, but I'm the majority shareowner of the holding company. Many of the staff have share options. This diminishes the friction you usually get in other foreign companies in China stemming from the grossly unequal compensation.

What's your business strategy in China?

I run a portfolio of five mainly IT related companies. The parent company, unbranded, is incorporated in Hong Kong and our Chinese presence is in the form of foreign wholly owned enterprise. As I didn't need a business license for my area, I avoided a joint venture. If I had done a JV it would have been at the Hong Kong level.

What's your exit strategy and how large is your business?

Most unlikely, but most lucrative, would be a listing in China or Hong Kong. We currently have a free cash flow of $4 million, and we expect to double that next year. We expect sales to rise to $15 to $20 million by 2004.

Alternatively, I could retire from day-to-day control, but keep a presence at board level and live off my share of the earnings. Or we could sell the company outright to somebody who wants to enter our market segment. We actually sold a network security company to a Chinese company, making five times the money we put into it. The most amazing thing for me was being bought out by a Chinese company, Founder, since I thought a western buyer was more likely. We needed the extra cash for other investments.

But before we 'retire' we still have to work on the standardization and procedures of middle management. If I leave the company for a few months, I would probably be expropriated by my customers, partners or employees!

What aspect strikes you as being most unusual about doing business in China?

The importance of sales, sales, sales. You can't rely on any other cash flow. But sales are very difficult in China, since you don't have the highly standardized sales process you get in the West. It's not a linear process in China. Personal empathy, perhaps because this is generally a low-trust society, plays a very important role. Taking people out for dinner, drinking with them, speaking the language are very important.

What makes you likeable?

Actually, in China it's important to appear as powerful and spendthrift as possible. People respond to that. It's quite different to the west where being modest is considered more of a virtue.

Power attracts. How do you react when you meet a powerful bureaucrat?

I give him all the respect his office demands!

What's the biggest challenge for doing business in China?

I can only speak from the Shanghainese standpoint, but this is a place where procedures are not followed. There are many small companies in Shanghai and people are emotional. For example, it's unusual for two small companies to merge: the bosses don't want to lose their authority. But Shanghai has a very strong middle class and lots of small companies and there is a lot of wealth in Shanghai right now.

Does the business culture differ in Beijing?

Beijing is increasingly important for me as we move into bigger projects. Beijing is better for organizing large-scale projects in a methodical way. I also think Beijing has a lot of growth potential, rather like Shanghai in 1995, meaning it could grow faster than Shanghai in the near future. The bureaucracy is not as restricted by red tape as many people expect, at least not in my industry.

You are based in China, selling to the Chinese. How does this go down?

I benefited from positive discrimination. People initially give you more leeway, but at the end of the day you have to do business in a way that the Chinese can relate to. That's where intuition plays such a big role - understanding what they like.

So what are the western aspects of your company?

We are very strict about focusing on strategy, ethics and procedures. At a tactical level, you could say, we play the Chinese game.

Do you have many foreign employees?

We have around four out of 80. They get paid local wages but have share options.

Who do you bank with?

The best bank is China Merchant's Bank. Their ATM cards always work, they don't sit on your money for weeks when you get a remittance and the service is prompt and efficient. But we also use China Construction Bank for the scope of its services and branch networks. We don't use a company credit card, but the bank supplies us with a debit card.

Is corruption an issue?

From my experience the corruption is no worse than in southern Europe, that is to say, petty corruption, or what The Economist magazine called 'enabling payments'. It's certainly not as blatant as Enron which destroyed $70 billion of shareholder wealth, as well as undermining public faith in key institutions such as accounting and auditing firms.

What about the recent Bank of China scandal?

It's simply not comparable in terms of scale. That involved $400 to $500 million. There is a strong consensual system in China - the top leaders know each other and if anybody goes overboard, a system of checks and balances stops one individual from grabbing too much wealth. Look at the family of (former premier) Deng Xiaoping. Sure, the children have been involved in scandals, but not to the same extent as the Suharto family in Indoneseia, the Bhuttos in India, or the Arab princelings. Extreme concentrations of wealth are not accepted by the rest of the establishment.

As for corruption within my industry, local people are worried about the issue. You can get a bullet in the back of the neck. We compete on service, quality and price.

But what happens if you lose out to somebody who is bribing your client?

They can't bribe everyone, and only losers try. We make it clear to our partners and customers that we are not in that game, and our integrity elicits respect.

From your experience of Japan, do you think China is following a better path?

Look at Chinese students in foreign universities. They are quicker, more articulate and network far better than the Japanese. The Japanese have structural problems they will probably never been able to fix. I think China's ahead. In China, restructuring is going on at incredible speed. Look how wrong The Economist was when it predicted negative growth and chaos for China after the Tiananmen incident in 1989. What the current Chinese government has achieved is amazing - pulling more people out of poverty in a shorter time than any government in history. I believe it's the best government in the world right now.