Guanxi

(The art of relationships)

Microsoft, China, and Bill Gate’s Plan to Win the Road Ahead
by
Robert Buderi and Gregory Huang
ISBN-10:0743273222

One day, in the first few weeks of my Chinese 102 class, Winter 2012, Nicole Boudin, who sits next to me, brought in a book she had found at a garage sale, titled Guanxi (The art of relationships): Microsoft, China, and Bill Gates’s Plan to Win the Road Ahead. It was time to select our second book for the China Business trip class. This seemed like great fortune. Even though she had only had it for just a few hours, Nicole let me borrow the book for the remained of the quarter. I asked if I could read this book, which was not on the reading list, for my next book and he approved it. In hindsight, I wish he hadn’t. This is not the book I had hoped it was.

Guanxi (The art of relationships) is the story of the creation of the Microsoft Research Center (MSRC) in China[1]. It starts with Bill Gates’ initial forays into China and his stumbles there and ends with the star of novel, Kai-Fu Lee (李開復) departure to Microsoft’s main rival Google, to repeat the success. The book is a mainstream novel for anyone interested in the history of Microsoft. It is not about guanxi, its about Microsoft.

I had hoped the book was a book strictly about guanxi: how to create it, how to nurture it, how to grow it and how to use it, but it’s not. Guanxi is the novelization of the recent history of Microsoft. It tells the story of how Microsoft opened their research lab in Beijing and later their Advanced Technology Center. It’s a well written novel, easy to read, but the title is very misleading. It is not about guanxi, it’s about Microsoft.

The material in the book could have been written by a PR flack at Microsoft. Everything is positive. The only “bad guy” is Juliet Wu, an early Microsoft China executive who leaves before the novel begins. Everyone else is a “good guy”.

When the book refers to guanxi, most often it’s simply to reinforce the title. When you invite your business partner to dinner, that’s not guanxi, it’s just doing business. We do the same thing in the west. Having cake with your employees on their birthday likewise is not guanxi. We do that here too.

In China, you need a permit to move and change cities. Microsoft was hiring many people at their center in Beijing, receiving over 20,000 job applications. So many, that they were having a hard time get the necessary permits for their new hires. Because the had a developed a relationship with the local officials, Microsoft was able to get the permit official to come to there Beijing office and do all the paper work for the new employees, rather than having each employee go to the government office. That’s guanxi.

Guanxi is mutual beneficial relationships. Microsoft couldn’t jsut take, they also had to give. In America, a post-doctoral appointment is just a research position. In China, there is a post-doctoral degree. Microsoft Research China became the first non-government run institution to offer post-doc degrees in China. They gave back to the community. That’s guanxi.

There are a few more examples, in the book. Buderi and Huanghe take the time to explain how Microsoft was always reaching out to government officials. Inviting them to dinners, technology demonstrations and other functions. In the west, we simply don’t do this. But in China, it’s required. That’s guanxi.

The last chapter tells the story of how Kai-Fu Lee became disillusioned with Microsoft and reached out to Google . He betrayed Microsoft, but he is still portrayed in a positive light. This is bad guanxi, but the book glosses over it. Kai-Fu Lee later left Google after four years to start his own company in China.

What I found most interesting about the book, was how it missed mark when predicting the future. Written in 2006, Guanxi hypes all the upcoming Microsoft products. Their tablet version of Windows, Windows Media Center Edition and especially Windows Mobile 5.0. The book gets it wrong. None of these technologies were terrible successfully. Looking back, it’s obvious how the iPhone destroyed Windows Mobile 5.0 and Symbian (Nokia) and Palm and the Blackberry (RIM). At the time, these were the heavy hitters of the phone world. Now their just relics. The technology just wasn’t good enough.

I believe that Microsoft has always been a “features” company. Just add new features to the product. They really don’t have a total vision. That’s why their products seem so disjointed. Different interfaces, different qualities between different parts. Guanxi reinforces my perception. In it, Microsoft creates the Advanced Technology Center to product-ize their research. MSRC does pure research. ATC was created to takes research from MSRC and figure out how to add it as features to upcoming Microsoft products.

The book does have it merits, though. Kai-Fu Lee details Six Challenges for doing business in China. Since he’s Computer Science PhD, he also has Six Formulas for meeting those challenges.[2]

6 Challenges and Formulas for Success in China

Challenge 1: Unique Protocols and Relationships

“China’s Culture is Built on Trust, Relationships and Mutual Respect. Trust takes a long time to build, but there are many ways to break trust: by showing disrespect, by failing to provide favors in exchange for favors received, by not following the protocols, by condescending, coercion, or by dwelling on controversial issues.”

Formula 1:  Learn the Protocols and Forge Trusting Relationship.

It’s is critical to building relationship with government at all levels from the start, even if it means seeking advice when advice isn’t really needed.[3]  Lee’s best example of this is during the SARS scare, Motorola sent its CEO to China for meetings. Beijing was on a two month lock down, and over 1,000 people had died. The prudent thing would be to stay away. But Motorola showed how high it valued its relationship with China by sending its CEO to Beijing for meetings.

Challenge 2: Contribute First and Benefit Later.

The Chinese look kindly on firms there to help China succeed, as opposed to simply trying to tap its vast potential market

Formula 2: Establish a Strategy for Long-Term Commitment.

It took six years to build Microsoft Research China, into the dominant force that it was. Do not expect instant gratification. Access to technology is far more important to China than money. They don’t need your money, they need your expertise and you know it. IF you look at China, and see a giant pool of resources and money, your will be unsuccessful and the Chinese will resent you, like they have all the Western invades for the previous centuries.

Challenge 3: Hire Senior Leaders and Nurture Local People.

The Key to winning favor and building lasting relationship in China is [to create] good leadership models that also develop Chinese citizens into leaders. You need to encourage ex-pats to return to China to serve as role-models for your local hires. Training local talent is critical to success.

Formula 3: Nurture Local Talent and Leadership. China has a motivated, energetic and smart workforce, but it is inexperienced in business processes and leadership skills. Lee believes it is vital for foreign firms to provide in-depth, on the job training, in management and leadership to their local employees.

Challenge 4: Play By China’s Market Rules. “The Chinese decide for their own reasons what rules to apply and who they would like to do business with The government feels no obligation to provide access to its vast and rapidly growing market simply because a foreign firm offers great products of possesses a sterling reputation.”

Formula 4: Be Flexible and Open to Local Needs and Practices

Robert Buderi and Gregory Huang cites two examples of business in China: Microsoft and Coke. In China, Coke lowered the price of it’s products so that the average Chinese person could purchase them. As a results, there is effectively no piracy of Coke products in China. Microsoft has held the line on the prices of it’s software, pricing them out of reach of most Chinese. It’s no big secret that Microsoft products are widely pirated throughout China.

Challenge 5: The Local Economy Gets Tops Priority

“China expects multinationals to help nurture [the] local economy in exchange for access to the China market.”

Formula 5: Help Build the Local Business Ecosystem China’s prime goal is to develop a strong economy where domestic companies can thrive. That means going beyond providing cheap labor and low-cost manufacturing to developing high-tech exports in areas such as computing and services.

Challenge 6: Good Image Can Be Elusive

Press freedom is limited and the media is more easily manipulated than the Western press—leaving firms vulnerable to wide swings in public sentiment.

Formula 6: Build Trust from a Unified, Humble Organization.

Public relations is virtually meaningless unless it is built on a long-lasting framework of trust and strong relationships. Keep a consistent corporate message and low PR profile. Don’t engage in PR campaigns, instead concentrate on winning trust from government and local partners.

These Challenges and Formulas are useful for anyone trying to do business in China. The clarify what a western company needs to do in order to be successful.

The western way of doing business, paying for the results that you want now, is simple not how it’s done in China. If you decided to do business in China, it’s like your brother getting another brother. You are now partnered with that firm or government official. You are expected to invite them to special events and treat them with respect. And because of this, they will do the same for you.

If you are interested  in guanxi, there are some better books to read. I suggest:

The China Dream: The Quest for the Last Great Untapped Market on Earth

and

Social Connections in China: Institutions, Culture, and the Changing Nature of Guanxi (Structural Analysis in the Social Sciences)

The first chapter is available for free. (PDF warning)

Note

I edited this paper on Microsoft Word 2010. Since Office 2003, Word has underlined words that are misspelled in red, and words that are used incorrectly in green. This technology was one of the first products to come out of Microsoft Research China.


Additional Readings

There is an online lecture with the authors, hosted at Microsoft Research: http://research.microsoft.com/apps/video/default.aspx?id=104327

and one at MIT: http://mitworld.mit.edu/video/367


[1] Microsoft Research China is now Microsoft Research Asia, but for consistency, I’ll refer to it at Microsoft Research China. Just remember that MSRC is now MSRA.

[2] They begin on page 263 of the paper novel.

[3] Page 264

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