Archives for category: Book Reports

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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Barack Obama casually carries The Post American World.

The Post American World

Fareed Zakaria

2008
ISBN-13: 978-0393062359

Fareed Zakaria provocatively titled his book “The Post American World,” but the title masks the true nature of the book. The premise of the book is that since the end of the Cold War, the United State has enjoyed a long period as the lone superpower in the world. She was involved in decisions that really didn’t affect her, by default, because what other country could. Now with the rise of China, and the RBIC countries, America status as the lone superpower is changing. The future will be led by a coalition of countries. It will be a period post-American dominance, but not post-America. America will still have the major part in the world; she just won’t have it alone.

It’s difficult to understand who this book is for. It’s clear and well written, it can appeal to everyone. Zakaria makes some mistakes. The first is the title, a post-American world. The book, in it’s essence, is a forward looking historically based analysis. The sleep giant — China — is now awake, and we’re not sure what will happen. Something will happen, but what is the question. What will happen when China becomes the dominant economy in the world. In addition to those seeking to understand China, American Exceptionalists and Neo-conservatives would seemed the target audience. But by titling the book as such, he immediately turns these readers off.  If you judge a book by its cover title, then this book must talk about the decline of America. In fact there’s even an Internet meme (http://www.snopes.com/politics/obama/postamerican.asp) describing it as “a Muslim’s view of a defeated America.” A less provocative and more accurate title would help dilute these claims.

The book is well written and easy to digest. In fact, most reviews mention this.(Amazon Reviews) Fareed Zakaria divides his book into seven parts, but it has four main themes: the history of China, the rise of China, what about India and what can and should America do?

The first main segment about the history of China, is very readable. It’s a great introduction to China for the Anglophile. By using comparisons between Western history and Chinese history, Zakaria carries the reader through an enlightening past. Like the early European explorers, there were great Chinese fleets that explored the eastern world. I found this section the most poignant.

Using facts and figures, Zakaria largely skips over the rise of China, he talks about GDP and the cost of living, but he does not address the cultural changes happening in detail. The failure of the great leap forward scarcely mentioned. He does not go into the logic behind China’s five year plans or the impact of the one child per family rule. He never mentions that China has yet to have their successful worker rebellion, like most western countries. His discussion begins and ends with numbers. China has $2 trillion in foreign reserves (Post American World, forward, page xviii) and the largest population in the world, therefore their a world power. The rest is fluffy numbers that reinforce this. A more nuanced discussion would have been more enlightening.

The longest chapter in book is about India, America’s natural ally. Zakaria does a fine job of comparing and contrasting India versus China, and why he believes China will dominate. India is a much poorer country, and China’s growth rates are already larger than India’s. It would take exceptional growth for India to overtake China. It’s my personal feeling that India’s story will be told in another book by Zakaria.

The final section of the book concerns what America should do, going forward. Zakaria lays out a coherent plan for the superpower(pages 235-250) America should (1) Choose what it’s priorities are on the world stage, going forward. She should (2) Build broad rules, not narrow interests with her foreign policy. (3) Be Bismarck no Britain. The United States should engage with all the great powers of the world, and be better friends with them then they are to each other. (4) She should embrace ad-hoc multilateral negotiations and order the a la carte, per se. (5) The United Sates needs to think asymmetrically when it comes to the use of it’s military. As Iraq proved, being the biggest does not always equate to success. And lastly, being (6) Legitimate is power. Going alone will not by wise in a multipolar world. Compare the success in Libya vs the failure in Iraq. The US needs allies and cohorts when it uses military might.

Zakaria constrains this analysis with a discussion of the current state of political system in America. He describes it as broken and do nothing. It has only gotten worse since the book was published. If America cannot fix this, then truly a post-American world is inevitable.

I also have a few complaints with the book: First, Zakaria completely fails to see an view of the world except free market democracy. American style business enterprise. and his view is still largely America-centric. Secondly, natural disasters are not mention. The looming threat of famine doesn’t appear, despite the important historical perspective to China. And third, he completely glossy over the concept of war.

Free Market Only

The Post American World overall is a disucssion of what the future will look like. “The issue that non-Western reformers were struggling with in the twentieth century has returned as a central quesion for the future: Can you be modern without being Western?” (p73)  Zarakia cites many examples of non-westerners adopting western styles and cultural elements as they become more modern, even “dispensing with formal dress altogether [and] adopting a casual jeans and T-shirt style.” (p77)

If Zarakia did not view the world through his western lens, he may have come to a different conclusion. For example, in China, guanxi, (關係)or “connections” is central to doing business. As China becomes the largest economy in the world, it’s natural that their economic customs will become much more common. Guanxi exists because China has a flawed legal system. “In a nation that has traditionally had little use for laws, personal power has always been the key to getting things accomplished.”#Furthermore, “even when they live in countries where the legal system is well developed and the law impartially enforced, Chinese still rely heavily on their guanxi networks.” (Scott Seligman, Chinese Business Ettiquette, p185)

Forgetting Famine

During the Great Leap Forward, Chinese farmers followed Mao’s direction for their crops. Plow very deep and bury the top soil. Plant seedlings very close together and you’ll get a higher yield. The pseudo-sceince techniques led to wide spread famine. During this man-made catastrophy from 1958-1961, though estimates vary, between 15 and 45 million Chinese starved to death. (http://www.nytimes.com/2010/12/16/opinion/16iht-eddikotter16.html)  Zakaria touches on this, but he doesn’t mention that it can happen again. All of the RBIC countries have growing populations. During the past few years, we witnessed food riots in Africa and rice rationing in Asia. The threat of famine is really. Going forward, China and India are growing on the world stage at the same time the world is growing from 7 to 8 billion people. The earth only has so much aridable-land. A some point we may meet the carrying capacity of the earth. Some say we are already there. (http://dieoff.org/page28.htm)  Though people have been making this claim for over 200 years. (http://science.howstuffworks.com/environmental/green-science/earth-carrying-capacity.htm)

What about War

With hardship and unrest comes war. Should the Chinese suffer a terrible famine, the chances for conflict increase. Zakaria has a state-centric view. Because China, Russia and the United States have nuclear weapons, Zakaria spends some time discussion India’s lack of nuclear weapons. He believes they deserve them. Under the guise that nuclear-armed countries do not fight wars, Zakaria rules out war in the post-american world. He states that the world is getting safer all the time. Early in the book, he states “It feels like a dangerous world but it isn’t. Your chances of dying as a consequence of organized violence of any kind are low and getting lower.”# Going further, he adds “I don’t believe that war has become obsolete or any such fooliness. Human nature remains what it is and international politics what it is…Still, if we are to understand the times we are living in, we must first accurately describe them. And they are, for now, in historical context, unusually calm.”

Since the American hedgemony began, most world conflict has been regional in nature. Zakaria does not address this. Backlash in China may develop against this new multipolar world. Zakaria does not even mention the Boxer rebellion at the turn of the last century. Tiennamen Square is not in his book. By neglecting this, Zakaria fails to complete his analysis of the post-American world.

Even though they are nuclear powers, the United States and Russia fought proxy wars against each other from the 1960s, until the 1990s. First in Vietnam, then Afghanistan. Likewise, the Iran-Iraq war of the 1970s and 1980s took the place of American involvement in the middle east during this period. Zakaria does think this will happen going forward. He thinks “we’ll all just get along.” I believe he is naïve.