On the Front Lines
Dig deep enough in any big Chinese city and you will find at least a handful of American entrepreneurs struggling to stay afloat in what is one of the world’s toughest developing markets.
Take Chris Barclay, a 30-year-old teacher from Florida. When he left a well-paying job to seek his fortune here three years ago, no one warned him about such peculiarities as the expensive, multi-course banquets of snake and cognac that are an integral part of sealing a deal with potential partners in this bustling southern port city.
But Barclay, who operates a management consulting and language training institute, remains committed to launching his own business in spite of daunting obstacles that have crippled U.S. multinationals with much deeper pockets and a safety net of attorneys and trade specialists.
“There are no shortcuts here,” he said. “You are not going to get in and get out.”
This is front-line capitalism, where few written rules exist and those that do change by the minute. Corruption is a growing problem throughout the Pearl River delta, where its proximity to Hong Kong has made it a haven for investors, thieves and underpaid bureaucrats hoping to pad their paychecks.
But in business, being small and fleet-footed has its advantages, particularly in one of the fastest-growing and wealthiest cities in China.
A recent survey conducted by the Washington-based U.S. Chamber of Commerce found more than 200 small U.S. companies doing business in China, half of which had fewer than 50 employees.
Unlike larger firms, whose managers are usually handcuffed to a head office thousands of miles away, these small operators can move quickly to exploit an unexpected opportunity or to avert potential disaster. And they often get away with less bureaucratic intervention, since they operate below the radar field of Chinese officialdom.
As president of the U.S. Chamber of Commerce in Guangzhou, Fred Hong is all too familiar with the frustrations of working without a safety net. Hong, who established a branch of his Los Angeles office here in 1993, was one of the first American attorneys licensed to practice law in China.
In addition to counseling frustrated clients, both American and Chinese, Hong has seen how even the simplest task can become a huge headache in China.
Take banking. Earlier this year, the Bank of China began arbitrarily restricting the withdrawal of funds from corporate accounts. On the day before the Chinese New Year holiday, Hong went to the bank to withdraw funds to cover a trip to Hong Kong and for salaries and bonuses for his staff. He was told he could not take out more than $1,350 from his account.
“Come back tomorrow,” the bank teller said, even though the next day was a holiday and the bank would be closed.
Hong’s request for an explanation went nowhere, not surprising in a country that considers most matters “internal policy” unsuitable for foreign consumption.
“In China, information is power,” he explained. “Everybody holds on to that information tightly.”
Hong, who still operates an office part time in Los Angeles, said the failure of many a U.S. venture here can be traced to a partnership with the wrong Chinese company, usually a firm with political connections and little else. Small issues quickly escalate into big conflicts, aggravated by language and cultural differences.
Other common complaints by U.S. firms include a lack of consistency and transparency in Chinese government policies, favoritism for Chinese companies, piracy and pollution.
“This is a very difficult market and it takes time,” said a senior U.S. consular official based in Guangzhou. “My caution to U.S. firms, whether they be big or small, is that they be very deliberate and move more slowly than quickly.”
It is to Kathleen’s, a Caribbean-colored cafe more appropriate to Venice Beach than this crowded industrial city, where homesick Americans come for a cultural breather.
Here, tucked away in an alley behind the giant World Trade Center, you will find Sinophiles with their feet planted on both sides of the ocean--Chinese Americans looking for bridges between their past and future, and the cowboys of capitalism who are found in any developing country--hawking their expertise and products to the highest bidder.
They come for Kathleen’s pepperoni pizza or homemade cheesecake, English-language films aired weekly on a big-screen television, and live music provided by a group of Nike executives who blow off steam in the corner on weekends.
In addition to pouring beer and busing tables, Kathleen Lau, a third-generation Chinese American from Massachusetts, serves as a consultant to foreign business people trying to cross the cultural chasm that can mean the difference between profit and bankruptcy in China.
More valuable than her college degree and her career at E.F. Hutton and Wang Laboratories is Lau’s own experiment as an entrepreneur.
Arriving in China in 1995 after quitting her job in Boston and traveling the world, Lau taught English to pay the rent. This proved an auspicious move, because some of her “Chuppie” (Chinese yuppie) students were government officials who proved useful later.
The importance of guanxi, or connections, cannot be underestimated in China, a country still dominated by personal relationships rather than the rule of law. But Lau cautions Americans about getting sucked in by fast-talking Chinese who claim to know all the right people.
“No one in China is going to tell you they don’t have connections,” she warned. “Everyone knows someone.”
When Lau decided to venture out on her own with the help of a $30,000 loan from her brother, she quickly learned that without guanxi it was impossible to even find out what was needed to get the proper licenses and approvals. That was when she began cashing in on her contacts in the Guangzhou city government, who were able to help her negotiate the bureaucratic maze.
“The rules depend on whoever is behind the counter that day,” she said.
Lau soon discovered that the concept of individual responsibility remains an alien idea to many Chinese.
On the recommendation of a friend, she hired a Chinese construction crew to remodel her cafe. After paying them, she discovered a number of problems, including clogged plumbing and leaky pipes. Lau assumed the Chinese workers would agree to make amends. But to her dismay, she found out that their goals were much different.
“In China, if I give you more [than necessary], then I’m stupid and you’re rich,” she said.
Convincing her Chinese staff to think for themselves has been one of Lau’s toughest management challenges. When plates of French fries started coming out of the kitchen in big heaps and small drabs, she called her staff together and asked them how to bring some order to their serving sizes. Painful minutes passed as the Chinese workers stood silently with their heads bowed. Finally, one of them spoke up.
“We could weigh the food,” she suggested timidly, prompting a hearty roar of approval from Lau.
After that, the staff learned not to come to the boss with a problem until they had a solution.
Lau, who also has started a catering business and a newsletter for expatriates in Guangzhou, said she is finally operating in the black. Although she admits to occasional fantasies about returning to a 9 to 5 job in corporate America, she isn’t ready to give up the chase.
“This really is the wild, wild West, with carpetbaggers, Rockefellers and DuPonts,” she said. “Everything is possible.”
Before signing up for the Chinese gold rush, Lau advises American entrepreneurs to set their own limits on what they are willing to risk.
“It’s like going to Las Vegas,” she said. “It’s always good to come with a bank you can afford to lose.”
On a recent Tuesday night, Chris Barclay was stretched out in a comfortable chair at Kathleen’s, watching the Oscar-winning movie “Shine” with some friends. Only in the last few months, since his joint venture application was approved, has he begun to relax.
Not long ago, Barclay and his wife, May, were penniless and discouraged. After quitting their jobs in Florida, they had arrived in Guangzhou in late 1994 with a $150,000 loan and an idea for a hardware exporting business.
After a couple of money-losing deals, they decided the competition from small Asian traders was too fierce. And it was costing them a lot more than they expected just to maintain a household in Guangzhou, because foreigners--particularly business people--are charged significantly higher prices for many things.
Although Barclay and his wife lived frugally, sleeping on the floor of their apartment/office for nearly a year, they started running out of money. To supplement their income, in December 1995, Barclay gathered together half a dozen expatriate friends, rented some office space and started offering English classes to young Chinese government officials and business people.
Once he decided to launch the American Language & Technology Education Center, he began looking for a joint venture partner to help smooth the way. The Chinese government kept steering potential partners his way, but they generally seemed to be motivated by expediency and political connections rather than business acumen.
The courtship involved long talks, expensive meals and heavy drinking in smoke-filled karaoke bars. The tab for an evening of snake and karaoke easily costs $300 for four or five people, an expense generally borne by the foreign partner.
The months passed and the entertainment expenses mounted, but Barclay kept turning down the government’s suggestions, determined to find a company that would be a genuine asset to his. He finally teamed up with a provincial education institute that had a solid reputation and an extensive network of schools throughout the country.
“I eliminated anyone who asked for a trip to Disneyland,” he said.
It could have been much worse. As a U.S. Chamber officer, Barclay often fields calls from U.S. firms dealing with corruption in one form or another. That includes companies being approached by government officials interested in collecting a “special tax” for nonexistent utility charges or threatening to close down a plant for safety violations unless a “fee” is paid.
“We’re bound by laws in the U.S. not to pay those fees and that puts American companies at an extreme disadvantage,” he said.
Barclay, who has offices in Guangzhou, Beijing and Chengdu, is confident his business will thrive, given the large numbers of American companies opening offices in China. His clients include Nike, Reebok and DHL.
His parents wonder when he and his wife will give up their youthful escapade and return to Florida, where they still own a house.
But while the security of a regular paycheck and the clean air of Florida are appealing, Barclay feels as if he and May are just beginning to reap the benefits of nearly three years of “baptism by blowtorch.”
