An Interview with Zac
Pessin on Approaching China's Business Environment
 3/29/01
-- Zac Pessin is an expert in applied technology and commerce on the
Pacific Rim, with a corollary interest in Chinese industrial
espionage. He earned his undergraduate degree at Stanford in Product
Design Engineering, and earned a patent for pervasive / ubiquitous
computing in his senior year working as a research engineer at
DaimlerBenz' (now DaimlerChrysler) advanced R&D center in Palo Alto,
California. At the same time he served as Assistant Director of
Mechanical Design at Stanford's Ginzton Laser / Optics lab teaching
post-docs how to manufacture apparatus used in the Gravity Wave
experiments designed to prove Einstein's last theories.
He earned a masters degree from Yale University in Applied Technology
and Commerce on the Pacific Rim, granted by the Council for
International and Area Studies, East Asia. The |
paper
discussed in part two of this series,
Origins and Development of Chinese industrial espionage, was the
one of the final papers he wrote as a Master's candidate.
Coincidentally, it was completed just as the Los Alamos security
breeches became front-page news. He went to Japan in August of 1999
to do post-graduate research at Stanford's InterUniversity Center for
Advanced Japanese Studies in Yokohama and was there for one academic
year. The final half of this period was focused on a project that
investigated Japan's suitability and conditioning for the development
of venture/ startup businesses in effort to create a New Economy and
end the 10 year Recession that currently besets it. He currently
resides in Japan where he works for CTR Ventures, a venture capital
company founded by foreigners along the lines of venture capital
organizations in Silicon Valley, but based in Tokyo and focusing on
Japan's market. He continues to pursue research in technology,
commerce and culture on the Pacific Rim, which he publishes quarterly
in his Kidpacific News (www.kidpacific.com
). |
Hal Brown: In your research you explored
many aspects of business and found that the US business climate is quite
different from China's. What is the primary difference as far as you see
it?
Zac Pessin: China is a country that is not yet run according to the rule
of law, and this is particularly the case as far as Business is concerned.
Obviously this differs incredibly from the US. China has a very long
history, but as far as modern business practice is concerned China is
still an adolescent. And even if the top officials in the Chinese
government are very educated and understand that the end goal is to create
a country that operates by the rule of law, actually getting a billion
people to agree is easier said than done. Under these circumstances the
Chinese government can make at least a semi-legitimate claim that
regulating international business agreements is difficult or even
impossible. Where the law exists in writing, or where the international
conventions on intellectual property and trade have been signed is the
first small step-- just as is getting a small child to recognize that
there are rules in life. Getting a child to actually follow the rules is
what turns him or her into an adult; and it takes time. China will break
the rules as all children do, and the measure of a parent is devising
effective punishments that educate rather than embitter.
Brown: China is often characterized as a culture where military
strategies (specifically Sun Tzu) have been taken to the business realm.
How appropriate do you feel it is to use this same line of thinking in
discussing modern-day business?
Pessin: In its long history China has probably endured more wars and more
casualties than any other country; so it is probably not excessive to
expect that a bit of strategic thinking pervades the business world in
China. As you were saying, Sun Tzu comments a great deal about spies and
allies; these are two very important and very real facets of business if
rule of law has yet to become the dominant regulating mechanism. So, given
the very strong strategic heritage in China (via Sun Tzu, etc.), the
Chinese leaders have realized that there is little progress in fighting
that which the structure of the existing economy is not designed to handle
-- namely the rights of Intellectual Property. If the goal of the Chinese
government is to raise the living standard and the national product of a
nation, what better way to do it than to harness the activities which are
either marginally or fully illegal according to the WTO and other
organizations, all the while claiming that bringing an end to the problems
is beyond the capability of the Government. In this way China is
modernizing a larger country, and larger economy, more rapidly than the
Japanese accomplished in the 40 years that followed WWII.
Brown: What is your opinion of the current government in China?
Pessin: I do not yet have any firsthand experience in meeting these
officials, however from the research I have done, and from noting
carefully the way they conduct themselves and their position, I have a
very positive opinion of China's government despite the fact that I do not
always agree with its record on human rights. The senior leaders in the
Chinese government utilize a very clever management approach. They are in
fact very, very smart people, some of them have advanced engineering
degrees as well as experience abroad outside of China. China is a nation
where countless people vividly remember the horrible experience of the
Cultural Revolution (a period during which China eliminated some 4% of its
own population through starvation, torture, execution, etc., and forcibly
separated families and relocated them to the ends of the country. When
China is criticized by the West, that criticism rarely takes into account
the devastation and chaos that resulted from the Cultural Revolution. By
contrast, the Holocaust in Europe brings shivers just by name and yet
arguably it affected fewer people). Because the Cultural Revolution
under Mao Zedong distorted human values so extensively, the masses of
Chinese today know only that what they have in their hand at any moment is
what they can call their own. China has very fundamental issues to deal
with which are not always understood clearly by westerners or their
governments.
Brown: What do American's need to understand about the legacy of the
Cultural Revolution?
Pessin: Imagine if for ten years on end logic and rationale were
banished. Imagine if all metrics of accomplishment were inverted,
distorted, even destroyed completely. Imagine being torn from your
family, all wealth stripped away, and living under the terror of imminent
torture or death for simply being intelligent, or for post -facto crimes
that had not existed the day before. Under the Cultural Revolution it is
probably not unrealistic to say that people were confused about what it
meant to be human. All things that have mattered and have been cherished
by humans in history were to a greater or lesser extent undermined by the
Cultural Revolution. One of its legacies relevant to business and
commerce is a degree of amoral Darwinistic greed which Americans cannot
comprehend in their wildest imagination.
This is the seed that grew into the massive, expanding, thriving, organism
that pays no attention to the rule of Intellectual Property conventions.
It is being run by millions of self-interested inordinately greedy people
who don't know any better because their country brainwashed them so
extensively that they didn't even know if they were living or dead. The
current Chinese Government has basically taken the position that they know
this 10 year dark period of China's modern history was tragic, but that
you cannot fix 800 million people immediately. They are prepared to work
slowly at it for the next 200 years or longer, until generations have
healed. And one of the most remarkable things about the Chinese is
despite all of this there is an incredible sense of optimism in the
people.
Brown: It's almost as if you're saying the Chinese competing in business
today are not really even aware of themselves or the results of their
questionable practices in their blind rush for profit.
Pessin: I would agree with that assessment, but we have to be careful
about levying blame. The sinister aspect of the Chinese economy is not
necessarily evil individual Chinese people, but the unchecked environment
in which they have no choice but to engage. This is more serious than
just trying to "find the guy you can trust" in China and then feel secure
about your business prospects. It is better to assume that it is everyone
for himself and family when it comes to China, and winning is all about
working with relationships so that the definition of family (network)
comes to include you. This is a very difficult undertaking for westerners.
But if you cannot compete on the terms that the game is played, and are
also not strong enough to change the whole game, then you have lost before
you even begin.
Brown: So what does this mean for people trying to do business in China?
It means re-evaluate the factors by which you decide the real value in
engaging China. For more than 100 years western business has been
dreaming of selling one shirt, one toaster, TV etc. to each of 800 million
Chinese. It is not easy-- and not because of things that fall under the
category of known difficulties for which expectations can be rationally
adjusted. I would say that there is still a good deal of irrational
behavior in the commercial activity of China; more than other countries.
Most westerners are not equipped to compete on the terms of this game
first because they lack language and native-family connections, but more
importantly because they come from an operating environment that long ago
eliminated the need for the more cunning and cutthroat skillsets.
To give an indication of how difficult it really is to break into the
Chinese market and stay there, note that it took Coca-Cola more than ten
years and millions and millions of dollars to establish itself-- and it
does not even have patented intellectual property to worry about! Coke
has an advantage over most in that its most precious information is an
unpublished trade secret which supposedly only three or four people are
privy to. Another example, the $100 billion trading companies in Japan,
such as Mitsui, Marubeni, etc., have special pay-off budgets (which are
apparently even tax-deductible in Japan!) to consistently pad the hands of
those they interact with in China to make deal making proceed more
smoothly and positively. These companies have not gone to China and said
we are going to change you.
Brown: Well there are in fact Western businesses succeeding in China,
what about them?
Pessin: Of course, Shell Oil, Motorola, Ericsson; GM has a plant in
China. There are lots of companies, big and small who are engaging China.
Furniture makers, toymakers, thousands of companies. It is not
impossible-- but I bet that almost all of them had to massively adjust
their timeline expectations and their budgets from what they originally
were. That is because I can only assume that Westerners underestimate the
extent to which rule of law falls short. I myself am subject to the same
issue. If you can accept the fact that you have no recourse to whatever
happens, then you are getting closer to a good mindset for dealing with
China.
If the Chinese government itself thinks that trying to change the game is
not possible in the short term, it certainly does not bode well for
individual Westerners hoping to via enforcement of the law. That is not
to say there is no value in engaging China-- the volume of commerce is
massive. All I'm saying is that for the short term it is probably better
to engage and guide, rather than waste energy hoping for unilateral
punishment from legal authorities who have even less executive reach into
China than its own government. If businesses are prepared to adjust their
expectations according to this, then by all means, help China grow up; the
whole world will benefit.
Zac Pessin can be reached at
zac@kidpacific.com
Hal Brown can be reached at
stressline@mediaone.net
Part 1:
Be careful what you wish for
Part 2:
The Chinese art of war business.
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