Thursday, December 1, 1994

Take our money but keep your stock

A Silicon Valley company owned proprietary technology that would allow a multinational Japanese company to catch up to the leader, another Japanese company, in the consumer electronics business. Every discussion and meeting went smoothly and mutual agreement on the basis of cooperation and contribution from each side was reached reasonably promptly. The only sticking point came up when the American company wanted the Japanese company to invest in the American company. This issue took some time to resolve. Eventually, the Japanese company injected the cash demanded and needed by the American company but as fee for a license agreement. In effect, the Japanese company said to the American entrepreneurs: "Here is the money, but you keep the stock." In a casual setting outside the meeting room, the Japanese executive explained to me that a license agreement can be committed at the division level while equity investments required board level approval. While the American company looks at the equity investment as a potential upside kicker in a strategic alliance, the Japanese company looks at equity investment as a potential source of embarrassment when and if the invested company goes down the drain.

Lesson for privately held companies looking to partner with Japanese companies: Do not assume that stock in your company is useful as negotiating chips.

Tuesday, November 1, 1994

P and G Rejoice in Prell

Proctor & Gamble's "Prell" shampoo is arguably one of the most talked about entries of western consumer products into China. There were at least three ingredients in its formula of success. P&G found a local partner to manufacture the product inside China and change the brand name to "Rejoice," a real word instead of "Prell," a made-up word that might confuse customers with limited English vocabulary. Most importantly, the company introduced the product in single-use, foil packs instead of just packaging them in large containers. Chinese women can afford the "luxury" of washing their hair with the P&G shampoo every so often but a bottle or tube would have been too expensive. Of course they will become loyal customers for larger containers when their income rises. In the meantime, it seems every stall and street vendor carry the little packets of shampoo and P&G is making a nice profit while watching the business grow.

Lesson: Adjust your product according to the local standard of living.

Wednesday, July 6, 1994

Asian Views of the American Dream

"Since 1960, the US population has grown by 41%. In the same period, there has been a 560% increase in violent crime, a 419% increase in illegitimate births, a 400% increase in divorce, a 300% increase in children living in single-parent homes, a more than 200% increase in teen suicide, and a drop of almost 80 points in Scholastic Aptitude Test scores.

"A recent report by the United Nations Development Programme also ranks the U.S. number one among industrialized countries in intentional homicides, reported rapes, and percentage of prisoners.

"The number of prison inmates has risen from 329,821 in 1980 to 883,593 in 1992. Hunger in the United States has increased by 50% since 1985.

"Asian and American reactions to these statistics can be strikingly different.

"Americans assume that the figures merely reveal that either economic growth has stalled in the United States or that its law order mechanism has broken down.

"By contrast, many Asians see the figures as evidence that something fundamental has gone wrong in American society"

The above excerpt is from May 30, 1994 issue of China Daily which in turn was an excerpt of an article that appeared in spring issue of Washington Quarterly. The author, Kishore Mahbubani, is Permanent Secretary of Singapore's Foreign Ministry.

By contrast, earlier in May, I accompanied a group of executives and engineers from Shanghai as they travelled to Tennessee, New York, Boston, Tampa, Chicago and elsewhere in the U.S. This was a group of seasoned travellers who have been to Singapore, Japan, South Korea and Germany but, except for one, were visiting the U.S. for the first time.

They were genuinely awestruck. They said that they could not imagine how close to a paradise is the United States. They loved the fresh air and beauty of Knoxville countryside, the sights and sounds of New York, the courtly culture atmosphere of Boston... They were impressed by the cleanliness, orderliness, openness and the casual friendliness wherever they went. They marvelled at things that we tend to take for granted.--Exchange visits of this kind will build mutual understanding and liberate attitudes far more than geopolitical harangue and threats, but that's another story.

More importantly, their fresh perspective of America made me proud to be an American but also very sad. Sad because Minister Mahbubani's statistics are not refutable. I was fortunate to have grown up in the U.S. during its golden era and perhaps my children did also. But will their children and their children's children? I think not, unless this generation starts to reverse some of those grim statistics. The responsibility does not rest with the President, the Congress, the police, the teachers and the parents. It rests on us all.

Friday, May 13, 1994

Sietar Keynote Speech, 5/13/94

Ladies and Gentlemen,

It is a pleasure and an honor to be invited to speak before you. It is a double honor to share the stage with State Assemblyman John Vasconcellos. Mr. Vasconcellos in my humble opinion is one of those rare independent thinkers who genuinely take the best interest of his constituents, his state and his country to heart. The highest tribute that I can pay to John is to say that he doesn't think and act like a politician.

I believe this is a particularly appropriate time to have as the theme of this conference, intercultural understanding around the Pacific Rim. The world has changed dramatically in the most recent decade. With television and the likes of omnipresent CNN, the world is a much smaller and compact place. Words and values as well as action get passed around with the speed of light. Americans cannot afford to remain in the dark about any other part of the world and about other cultures and ethnic groups.

With the dissolution of big bad bear used to be known as the USSR, America is no longer look upon as the standard bearer of the good guys. Maybe it is ungrateful of the Asian nations but they seem to consider themselves more as peers to America now than as dependents. This means that the days when America speaks and Asia listen are gone and probably not ever coming back. Now the communication will have to be in both directions. Consequently it is going to be vitally necessary for America to recast their role, and to do so, it will be necessary to understand the cultures around the Pacific Rim and how they differ from the western values embraced by the U.S..

Finally the U.S. cannot ignore the economic boom that is taking place in East Asia. For the first time last year, Japan's trade within East Asia has exceeded its trade with North America. Similar trend can be seen in China and other Asian states. The East Asian nations are becoming more regionally interdependent. If the U.S. does not want to be a second fiddle in this arena, then it will have to learn and master intercultural communication and exchange around the Pacific Rim.

While the rest of the conference will deal with the specific subject areas that make up intercultural understanding, I would like to make some observations of intercultural differences between the East and West. I should hasten to add that I do not consider myself any sort of intercultural expert. My vantage point is that of a business consultant who has been helping American companies develop durable relationships in Asia. I find that I frequently do things more intuitively and without conscious intent. In any case I hope you would find my random remarks relevant to this conference.

First of all, and I wish with the bottom of my heart that this is not true, but from what I can see, the Clinton Administrations approach to East Asia is as wrong-headed as it can be. A real disaster. The style is best exemplified by trade negotiator Mickey Kantor who is the very personification of a super American attorney. In other words, a hard nosed, confrontational, aggressive, in-your-face kind of guy. Whether the issue is human rights in China, numerical targets for markets in Japan, nuclear weapons in North Korea or the tender buttocks of a teen age graffiti artist in Singapore, the approach of the Clinton Administration has been to favor very public demand over behind-the-scenes diplomacy.

Take the case of Michael Fay. If the original intent was to intercede on his behalf, publicly condemning caning as cruel and unusual punishment was not going get him off, and it didn't. The Asians could not understand why the President of United States would on account of one mere individual of dubious upbringing elect to publicly embarrass another sovereign state and government. This was not an action they could understand. To Asians, the most powerful leader in the world presumably had more important matters to worry about.

By reducing the sentence by two strokes, the Singaporean government was in their own way returning the insult. In effect they are saying that the prestige of the U.S. Presidency was worth two strokes on Young Fay's buttocks. Of course with a martial arts master manning the cane, there is a great deal of latitude on just how much damage one or six full strokes can do. The proper approach, in my opinion, assuming that any approach was warranted, and I am not convinced that it was, would have been for the White House to write a private (let me emphasize: private) letter to the head of state of Singapore asking for leniency on behalf of Fay. That way face would not be involved and both sides have a chance to get off gracefully.

Michael Fay's father's insistence to carry on the dispute after the fact was also interesting. If Fay had been an Asian, his father's anguish would have been equally heart felt except a lot of it would be caused by chagrin and embarrassment that somehow he had failed to bring his son up properly. In fact the father of the boy from Hongkong from the same gang who received 12 strokes was quoted to have said, "Singapore is a good place except for that."

You see, in the U.S., family values became a battle cry of sorts in recent political history. But it turns out that the former vice president Quayle and candidate Pat Buchanan was more interested in knocking down the rating of a popular TV program than showing any real understanding of what family values really means. The Asians, on the other hand, have been guided by their sense of family values since the days of Confucius, or about 600 years before the common era. (That's BC for those of you that haven't gone to see the Dead Sea scrolls exhibit.) The Asian sense of right and wrong and daily conduct is guided by the strictures of the family. By the desire not to bring shame to the family, by the sense of obligation to the common good of the family, by the need to bring honor to the family name. This set of values is why in Asia caning can replace the need for overflowing jail. The public embarrassment of having to endure the caning is far more difficult than to be quietly spending time in jail. I don't think the "Three strikes and your out" advocates in this country would understand this difference.

We all heard about Secretary Warren Christopher's recent disastrous trip to China, ostensibly to tell China on how they should behave as related to human rights. What we heard was the rebuff he received from the Chinese. We didn't hear much about what actually happened. According eyewitnesses, upon arrival at the Beijing airport, he immediately encountered an impasse because of his insistence to bring a police dog into town as part of his entourage for security reasons. As is common in many countries, the Chinese insisted that the dog stay at the airport in quarantine and there can be no exception. Just from the slogans of old about Yankee running dogs, one would know that dog are not look upon quite the same way in China.

After relenting, he then insisted on riding in from the airport with the American ambassador to get an early briefing rather with the vice foreign minister in the lead limousine. Then instead of staying at Diaoyutai, the State guest house, where all foreign dignitaries are put up, Secretary Christopher insisted on staying at a hotel to allow easier access with the staff of the American embassy. May be the secretary have good reasons for these decisions, but they certainly were not diplomatic and must have added considerably to the frosty atmosphere.

Congresswoman Nancy Pelosi of San Francisco, the self-annointed champion of human rights in China, committed an even more atrocious gaff in my opinion. In 1991 she went to Beijing as part of a delegation that were guests of the Chinese government, ostensibly to see for themselves as to the conditions in China. Of course their schedule was arranged by the Chinese host. One day she excused herself for being too tired and was thought to return to the hotel. Next thing you know, she appeared at Tiananmen Square in front of a battery of TV cameras that by some strange coincidence seemed to be waiting there. She unfurled a banner protesting human rights conditions in China. Of course she gained considerable political capital back home even if at the expense of her relationship with her host in China.

This is probably not the right forum to get into this, but I am not in favor of mixing the human rights issue which most favored nation status, which is a trade issue. I think the Clinton has been giving so many mixed and confusing signals on this matter that it is doubtful that the U.S. has any longer any kind of leverage on China. Suffice it for me to quote the late President Nixon on this matter. He said in his last book: "Within two decades...., the Chinese may threaten to withhold MFN status from the U.S. unless we do more to improve living conditions in Detroit, Harlem and South Central Los Angeles."

At a recent keynote speech in the Bay area, Milton Friedman said political freedom has nothing to do with economic freedom. The two are not related and having democracy does not necessary lead to better off economies. Improving economies does lead to liberalization of human lives.

We have been too long in the position of calling the shots. Now, even though other nations are no longer in the mood to just listen and abide, we have not gotten out of the habit. In order to maintain our prestige and our influence it will be necessary for us to modify our behavior to be in sync with the changing times.

Let me conclude with a couple of anecdotal stories that more or less exemplify moderate behavior mixed with intercultural understanding.

A group from Shanghai recently paid a return visit to a company in Tennessee. It was to be their first visit to the U.S. The American host, having visit China first, understood that Chinese are accustomed to drinking hot tea all day long. Since American hotels do not normally provide boiling water for tea, the executive provided electric kettles for heating water in each room. He also bought mason jars for each of the visitor! In case, some of you don't know, mason jars are used for home canning. From his visit to China he noticed that taxi drivers use jars to hold their tea, from which they would sip all day long. So he concluded that Chinese like to drink tea from glass jars.

Actually Tang, the breakfast drink is popular in China and the empty bottle with the lid is just right for holding tea while the lid keeps the contents from spilling in the taxi. So you see virtually all the cab drivers with the Tang bottles. I had to keep from laughing when I explained that regular mugs would have done the job nicely. But it turns out the joke was on me. The executive had found some with mason jars with handles so that they really were for drinking. The Chinese loved them because they also could be used to make instant noodles which they preferred to Western breakfast.

On Huaihai Road, which is one of the two busiest and glitziest commercial streets in Shanghai, there is a busy and popular fast food restaurant decked out in golden yellow and orange red. It's called Nancy's Fast Food and its trade mark is the letter "N" which is represented by one and one half of golden arch. Can you picture this: one and half golden arches on a reddish orange background? Now if Nancy's fast food is in the U.S., what would you do if you are MacDonalds? You would hire a lawyer, of course. But you are in China and the owner on Nancy's is related to the mayor, arguably the most powerful man in the town of 14 million, what do you do? You could protest via Washington. You could ignore it or in this actual case, MacDonald is opening its first restaurant in Shanghai just a few storefronts away from Nancy's. It is going to be very interesting to see what if anything will happen to the business volume of either stores.

I believe to be successful in this modern world, it is necessary to understand other cultures and know how to communicate effectively across cultural gaps and mismatches. Those that do will be successful. Those that do not, will be frustrated all the time. I wish all of you success in your participation in the remainder of this conference. Thank you very much for your attention.

Friday, April 22, 1994

To Flog or Not is Hardly the Question

Isn't it just astounding how much international commotion one graffiti artist can be the cause of? Obviously this young American's upbringing did not include respect for other people's property. Unfortunately, he chose the pristine Singapore to display his talent (or whatever) rather than say New York, where his contribution would be just one more blip in midst of a cacophony of obscenities.

Much has been said about this unfortunate young man from many sides involving even the President of the United States. In the overall scheme of things with the world in turmoil, does this one individual deserve this much attention? No doubt, the Michael Fay issue is another example of the East/West cultural collision. Rather than cover the ground already discussed ad nauseam by many others, let us examine some tangential aspects of this incident.

However well intentioned, Clinton did not do Fay any favors when he publicly condemned flogging as cruel and unusual punishment. The President got bad advice, because the pronouncement served only to stiffen the Singapore government. Face was now at stake. No sovereign government, especially in Asia, wanted to be seen as subservient to Washington. The only route, in my opinion, that had any chance of getting Fay off would have been a private letter from the President to the president of Singapore asking for clemency on Fay's behalf--assuming that was the desired objective.

However, to digress a little, subtlety has not been a trademark of the Clinton's administration in any of their dealings in Asia, whether it be China, Japan, North Korea or Singapore. Hardnosed. Insist. Demand. Condemn. These have characterized their action and attitude whether the issue be trade, human rights or nuclear proliferation. So far, this has not led to any of the aforementioned Asian nations to cave in. A softer approach would have been more effective. Asian martial arts emphasize toppling the opposition by using the perpetrator's strength against himself. The administration can learn from this philosophy.

To digress even further, what if the culprit had been an African American from say East Palo Alto? Would the Singaporean court mete out the same sentence? I am not familiar with Singapore's justice system, but my guess is that it is apt to be more color blind than say Los Angeles and would have passed out a similar punishment. Would such a sentence arouse as much furor in the U.S.? What do you think? Be objective now, please.

The "Crossfire" program on CNN (its availability makes it a favorite network of mine when travelling in Asia) dealt with the flogging issue by having an Asian business consultant living in San Francisco explain the Singaporean point of view, which she did most admirably. She did it so well that the exasperated host, Michael Kingsley, finally asked the inappropriate question: "If you like Singapore so much why aren't you living in Singapore?" (Kingsley did preface the question by acknowledging that it was inappropriate.) My answer would have been: "I choose to live here because the U.S. is where I belong. However, if I choose to live elsewhere I would expect to abide by the laws that exist there."

Wednesday, April 20, 1994

Basics of collaboration for Chinese companies in America

Increasing number of delegations from China are visiting the U.S. for the purpose of finding investors or cooperating partners. From my observation, I would guess that most of these delegations have not received very satisfying results so far. To enjoy greater success in future visits to the U.S., Chinese delegations need to keep certain rules in mind: (1) They need to meet the right kind of organizations. (2) When they do meet prospective investors/partners, they need to have the kind of information that would stimulate Americans' interest. (3) In order for this to happen, they need proper preparation. I would like to briefly discuss each of these rules with the hope that my explanation will be useful to groups planning to come to the U.S. in the future.

Meeting relevant organizations.

I have seen visiting delegations announce they intentions to meet prospective American partners by advertising in local Chinese language newspapers! This is a severely limiting approach. Americans of Chinese ancestry make up about 2% of the U.S. population and only a fraction of these regularly read any of the Chinese language newspapers. Many of those that do read Chinese language newspapers are retired and are unlikely to be interested in the delegation.

In order to meet prospects that would have genuine interest in meeting delegations from China, it is necessary to know who these prospects are and contact them well in advance. Since in most cases, it is not possible to identify the prospects in advanced of coming to the U.S., the delegation need to depend on organizations in the U.S. that could make the introduction, arrange the meeting and take care of other local details. Such intermediary organizations could be national organizations, such as U.S.-China Business Council, local organizations such as Asian American Manufacturers Association based in Silicon Valley, or for-profit organizations and individuals that participates in U.S.-China trade such as my organization.

How to Stimulate Interest

It is, of course, not enough just to be able to contact an American organization willing to host a delegation from China. If the American host do not understand the intent of the visiting delegation, they would be reluctant to accept the responsibility of being a host. Even if they are host, they would not know who to invite to meet the incoming delegation and the results will still be disappointing. It is therefore important for the delegation to be able to state their intentions, and that means the delegation must first know themselves as to the purpose of their trip to the U.S.

I believe tightly focussed delegations will have more success than broadly focussed groups. What I mean by this is that groups that know exactly what they want from the visit are more likely to meet relevant parties, engage in more substantive conversations, and leading to constructive future dialog. Delegations generally interested in everything will likely ended up not meeting anyone worthy of future contact and conversation.

For example, if a delegation wants to visit the U.S. to discuss cooperative ventures in automotive components. There are directories and associations serving the automotive industry that the host can use to make up the invitation list. If the group is even more specific, say, having an interest in under-the-hood electrical components, the host can quickly contact the handful of companies in that business and establish an itinerary. On the other hand, if the delegation is interested in "latest advances in high technology," the potential host can only wonder as to where to start in order to organize a meaningful program and itinerary.

Advanced Preparation is Essential

In order to organize a mission with a specific objective, ample preparation in advance of the trip is required. It is not enough for the delegation to go to the U.S. and say "we want to do business with you." The delegation need to describe the business opportunity for which they are seeking an U.S. partner, the advantages the Chinese side is offering and the kind of participation they need from the other side, and the anticipated benefits and future for both partners.

When dealing with Americans the first meeting is the most important. American business executives respond to opportunities and information. They respond poorly to general concepts and they become impatient in the absence of hard data. If at the first meeting, the Chinese side can present a detailed plan that take market, technology, competition, resources and other parameters of a business into careful consideration, the American side will be impressed. If on the other hand, the Chinese side present the impression that they do not know what to do, the American side will be disappointed and the likelihood of a second meeting is considerably diminished.

A lot time and resources are expended to organize a trip to meet prospective business partners. It would be a pity to waste such opportunities because of a lack of preparation. Just what constitutes complete preparation is an important subject reserved for another discussion.

Friday, March 18, 1994

First would-be Chinese American Regent Not Confirmed by State Senate

Instead of becoming the first Chinese American to serve on the Board of Regent to the University of California system, Dr. Lester Lee became the first nomination in the state's history to be denied confirmation by the state Senate. Republican Governor Pete Wilson's first regent appointment of a Chinese American was denied confirmation by the Democratic controlled Rules Committee, chaired by Senate President Pro Tem Bill Lockyer. The Senate had one year to act on the governor's nomination. The Rules Committee acted five days before the year was up.

On the final day, a floor fight and roll call vote supported the denial. No Democratic senator voted in favor of confirmation and no Republican senator voted against the confirmation. The lone independent senator, Quentin Kopp of San Francisco, also sided with the Democrats in denying Lee's confirmation. Senator Al Alquist, representing the San Jose area, was one of the Democratic senators who abstained from voting. Tom Campbell, Republican senator representing the northern end of Silicon Valley, was out of town and did not participate in the roll call. The final margin was 19 against Lee, 15 in favor and 6 not voting.

Senator Alquist was a supporter of Lee's confirmation. He abstained in the strict party line vote as did 4 others. To go against the Rules Committee when it is controlled by ones own party is to commit political suicide. The powerful committee is chaired by Senator Bill Lockyer, representing the east bay cities south of Oakland extending down to Milpitas. Nicholas Petris representing Oakland and Ruben Ayala from southern California make up the 3-2 Democratic majority.

On the Tuesday following the final Senate action, a press conference was held at the Chinese Consolidated Benevolent Association to protest this action. Organized by Dr. John Tsu, Chairman of Asian American Political Education Foundation, over twenty Chinese or Asian American organizations turned out to show their support for Lee. A parade of representatives of these organizations stepped forward to the microphone to voice their views.

"This is an outrage and an insult to Asian Americans, that the Senate would reject such a highly qualified individual through political gamesmanship," said Dr. Tsu in his opening remarks. "All Chinese Americans and Asian Americans should hold their Senators accountable for the votes they cast against Dr. Lester Lee and the community."

Larry Lo, Presiding President of the Chinese Six Companies, said: "It is ironic that it was Democrats, who have long held themselves out as the friends of the Chinese Americans, who were the ones to kill the appointment." He concurred with Dr. Tsu by claiming that such disregard for Chinese Americans will not be forgotten in his community.

Oakland harbor commissioner, John Loh pointed out that Chinese Americans have waited for almost 100 years to have representation as a regent. "The Democratic Senators action in killing the appointment is a slap on the face of all Chinese Americans," he declared.

The San Francisco based Chinese for Affirmative Action chairman, Henry Der, a Democrat, said: "The actions of the Democratic Senators completely violated the very principles of the Democratic Party."

The reason given by the Democratic Senators was Lee's casting votes in favor of raising student fees, while serving as regent pending confirmation. In the Rules Committee letter to AAMA, Lee's rejection was because of lack of "independence essential in these times." By calling Lee a rubber stamp of the UC administration, this unprecedented action was intended to show their opposition to any further increase in student fees.

Republican Senator Ken Maddy, from Fresno, pointed out that there were no hint of any dissatisfaction with Lee's performance as a regent until the very last moment. In fact, Senator Lockyer was a member of the selection committee which in its advisory capacity had approved the confirmation of Lee only two days previous to the denial action. His conclusion was that Lee became a victim of the political struggle between the Democratic Senators and the Republican Governor.

The Democratic Senator Alquist agreed. In his letter to AAMA, he said: "The (Rules) Committee's action in refusing confirmation of Dr. Lee as a University of California Regent was a shameful political action on their part, motivated by a wish for retaliation against Governor Wilson."

Lee himself was rueful in retrospect. "What I did as regent may not always please the elected officials in Sacramento," he said, "But I deeply believed that what was good for the UC system should be my first consideration." He admitted that as this experience showed, he was a political innocent because he had no idea that the regent position was so political and that he was on the way to a political ambush.