The Worldwide Web of Chinese Business

Most discussion of today’s global economy centers on three powerhouses: North America, Europe, and Japan. In turn, economists usually divide Asia into Japan, a People’s Republic of China that is rapidly changing and on the rise, and the industrialized “dragons” of South Korea, Taiwan, Hong Kong, and Singapore. Yet this standard economic definition doesn’t match Pacific Rim realities. In fact, Chinese businesses—many of which are located outside the People’s Republic itself—make up the world’s fourth economic power. The very definition of “China” is up for grabs. What we think of as Chinese now encompasses an array of political and economic systems that are bound together by a shared tradition, not geography. For many generations, emigrant Chinese entrepreneurs have been operating comfortably in a network of family and clan, laying the foundations for stronger links among businesses across national borders. And Chinese-owned businesses in East Asia, the United States, Canada, and even farther afield are increasingly becoming part of what I call the Chinese commonwealth. Not based in any one country or continent, this commonwealth is primarily a network of entrepreneurial relationships. From restaurants to real estate to plastic-sandal makers to semiconductor manufacturing—from a staff of five or six family members to a plant floor of thousands—the Chinese commonwealth consists of many individual enterprises that nonetheless share a common culture. It’s the kind of global network many Western multinationals have tried to create in their own organizations. Now these same Western companies are casting about for Asian joint venture partners, looking for ways to tap into the increasingly powerful Chinese network. For most multinationals, Asian-based or not, it’s time to take the commonwealth seriously. To begin with, countries with Chinese-based economies have astonishingly large capital surpluses. Taiwan, one of the smallest countries in the world, has the largest foreign exchange reserves. Singapore, a country of 2.7 million people, has foreign exchange reserves exceeding $ 34 billion. Then there are the private and informal capital markets of Chinese family and clan associations, in which financial resources are deployed for new venture activities without the intervention of commercial banks, professional venture capital companies, or government investment agencies. In addition, the Chinese entrepreneurial network and Japan represent two very different integrating forces in Asia. Unlike the Japanese, the Chinese commonwealth has, in computer terms, an “open architecture.” It represents access to local resources like information, business connections, raw materials, low labor costs, and different business practices in a variety of environments. In contrast to the Japanese keiretsu, the emerging Chinese commonwealth is an interconnected yet potentially open system—and in many respects, provides a new market mechanism for conducting global business. Thus it’s now possible to reach markets in the People’s Republic of China through Chinese entrepreneurs in Taiwan. Outsiders may be able to access Southeast Asian markets through the Hong Kong and Singaporean business communities. And ultimately, both Chinese and non-Chinese entrepreneurs may come to take advantage of opportunities in North America and Europe through the Chinese network in those regions. Many of these Chinese entrepreneurial connections, of course, still involve few outsiders. The traditional small size and family orientation of Chinese businesses certainly have hampered their growth. The Beijing Stone Group, whose stated goal was to become “China’s IBM” (until co-founder Wan Runnan fled the People’s Republic in 1989), offers one example of how Chinese business practices have evolved in the past 20 years—and the difficulties these companies still face. Other companies like the Acer Group in Taiwan and the Pico Group in Singapore have successfully blended the old with the new. The new Chinese management model, like the commonwealth that underpins it, is grounded in both traditional Chinese values and Western practices that encourage flexibility, innovation, and the assimilation of outsiders. Such a shift in values has meant not only a transformation in how Chinese businesspeople view themselves and their work but also the expansion of the emerging network. And over time, a new ideology of economic self-interest, one that truly does transcend politics and the clannish constraints on traditional Chinese business, may lead to even greater integration of the commonwealth. The Shaping Power of Confucian Tradition For more than 2,000 years, Chinese culture has stressed the importance of social order. From the sixth to fifth century B.C., Confucius codified the ties of individual, family, and society that define a person’s proper place and position. Given China’s long history of political upheaval, natural disasters, waves of emigration, and, above all, economic scarcity, these well-defined relationships have often helped keep social chaos at bay. Based on a study of Chinese entrepreneurship I’ve conducted over the past two years, in which my research team has surveyed or interviewed more than 150 entrepreneurs both inside and outside of China, it is clear that the Confucian tradition is remarkably persistent. For most Chinese entrepreneurs, Westernized as they may be, the enterprise is still a means for exerting control—and for achieving security in a disordered world. My research interviews reveal a consistent pattern of personal disruption and hardship, including loss of country, wealth, home, or a family member. In my survey, 90 % of the entrepreneurs who were first-generation emigrants had experienced war; 40 % had gone through a political disaster like the Cultural Revolution; 32 % had lost a home; and 28 % had weathered economic disasters that resulted in significant loss of wealth. In ancient China, farmers in a largely agrarian economy focused on surviving storms, droughts, and locusts. More recently, business has become a key to survival for Chinese emigrants, especially during the Chinese diaspora of the past century. Enterprising entrepreneurs work long hours and save wherever they can, accumulating capital in a world they still consider unsafe. This survivor mentality and the Confucian tradition of patriarchal authority inform the values of the typical Chinese entrepreneur—one who seeks to control his own small dynasty. In fact, China’s history of political and social turmoil has led to a relentless practicality, which can be summarized in the following “life-raft” values: Thrift ensures survival. A high, even irrational, level of savings is desirable, regardless of immediate need. Hard work to the point of exhaustion is necessary to ward off the many hazards present in an unpredictable world. The only people you can trust are family—and a business enterprise is created as a familial life raft. The judgment of an incompetent relative in the family business is more reliable than that of a competent stranger. Obedience to patriarchal authority is essential to maintaining coherence and direction for the enterprise. Investment must be based on kinship or clan affiliations, not abstract principles. Tangible goods like real estate, natural resources, and gold bars are preferable to intangibles like illiquid securities or intellectual property. Keep your bags packed at all times, day or night. These underlying values probably account for certain archetypal business choices of first-generation Chinese: real estate, shipping, and import-export companies. Such industries generally require a limited span of control and can be managed effectively by a small group of insiders who can be members of the same family. Even Chinese enterprises that have grown quite large tend to maintain immature organizational patterns—for example, management “spokes” around a powerful founder “hub” or a management structure with only two layers. Of the entrepreneurs I surveyed, 70 % noted that they still operated around one of these two simple structures. In such imperial organizations, Chinese entrepreneurs manage traditional enterprises much as a Chinese emperor would his empire. Not surprisingly, the assets of the business usually are passed on only to family members. My research interviews indicate that many Chinese entrepreneurs still consider imperial organizations crucial to their success, regardless of the entrepreneurs’ age or generational identity. As one old Chinese saying puts it, “Better to be the head of a chicken than the tail of a large cow.” The founder of Formosa Plastics in Taiwan, Y.C. Wang, still controls this successful chemicals and plastics company, which now employs more than 30,000 people. Wang directs the company through an inner circle of fewer than 10 professional managers who are not family members. These executives, in turn, work with an administrative group of about 200 other managers. The purpose of this administrative group is to channel and distill information into a series of daily reports, which reach Wang either in person or by fax. And Wang’s son, an operations manager, occupies a plush office at corporate headquarters—much as the princes in an imperial bureaucracy lived in different wings of the palace. There are plenty of other recent examples of dynastic “succession”—from former prime minister Lee Kuan Yew, whose son, Lee Hsien Loong, became Singapore’s Minister of Trade and Industry to Wee Cho Yaw, the founder of Singapore’s United Overseas Bank, who installed his son, Wee Te Cheong, as deputy president not long ago. As original founders like Hong Kong’s Li Ka Shing of Cheung Kong Holdings, Malaysia’s Robert Kuok of the Shangri-La Hotel and other ventures, and Indonesia’s Liem Sioe Liong of the Salim Group approach the end of their careers, control of these global companies will probably remain in family hands as well. But dynastic aspirations may explain why companies that appear as cosmopolitan as Wang Laboratories in Lowell, Massachusetts still maintain an imperial model at their core—and often fall apart. Fred Wang, whom his father An Wang finally called an inadequate manager, seemed quite capable when he was promoted to president of Wang. Still, the American management group that surrounded Fred Wang didn’t fully accept his inherent right to run the company. In Asia, the executives in a professional management group would have accepted unquestioningly a family member as leader. They might have wondered if it was too early for that person to achieve power, but they would not have contested the basic promotion. At Wang Laboratories, such East-West value differences led to many additional conflicts and contributed to the company’s eventual decline. By its very nature, the life raft of a familial business is unstable for key outsiders. Based on my research, a non-Chinese professional manager can’t expect the same level of trust he or she would have as a family member in the company. Outsiders can never know family insiders as well as they know each other. And non-Chinese professionals often have to work doubly hard to understand the reasons underlying certain decisions. Anyone who routinely deals with successful Chinese businesspeople soon realizes that while 90 % of a given entrepreneur’s decisions may be brilliant, the other 10 % often make no business sense. The typical Chinese entrepreneur may keep a poor manager on because “he’s family”; sit on decisions that involve outsiders; conceal information because “she’s not family”; avoid necessary confrontations; and in many respects, behave toward subordinates like a guilt-provoking parent. Most telling, however, is how quickly traditional organizations hit snags when they expand beyond the limits of family control. In a 1990 Fortune survey of Pacific Rim businesses, only one Chinese enterprise made the list of the top 150 based on size. As these companies start to grow, the conventions of traditional Chinese business, especially caution toward outsiders, become a clear competitive disadvantage. In the classic story of a Chinese dynasty’s fall, a weak emperor, along with a weak group of imperial managers, can no longer satisfy the people and loses the “mandate of heaven.” In today’s global economy, the need for continual innovation may provide a new earthly mandate for organizational change. Breaking with Tradition “In Chinese culture, you have to respect your father and mother,” notes James Yen, the president of Advanced Microelectronic Products in Taiwan. “This respect kills creativity. If you have to respect what your father says, then you tend to kill your own thinking.” Along with the adherence to traditional Chinese values across generations, my research also reveals that the “life raft” has expanded. The emergence of an economically powerful commonwealth is due to a number of changes over the past three decades, including a break with traditional life-raft values. The sons, daughters, and grandchildren of first-generation entrepreneurs have assimilated to a far greater extent. People of Chinese descent are now born all over the world; they are multicultural and have lived and been educated in a manner different from their parents. While second- and third-generation Chinese still respect the family enterprise, these younger entrepreneurs have absorbed other values as well, particularly if they live in Western countries like the United States. (See the insert, “The American Connection.”) The American Connection by: Frank B. Gibney For Chinese students, intellectuals, and entrepreneurs, the United States is the quintessential open society. Despite past exploitation of coolie labor on Western railroads and the bigotry of immigration laws, successive generations have found the individualist ideals of America as appealing as its pop culture. While Asia watchers often don’t consider its impact, the “American connection” is an essential force behind today’s growing Chinese entrepreneurial network. The influence of U.S. values and business practices on Chinese communities around the world is most obvious where the connection is weakest. As experienced victims of racial persecution, the Chinese of the Pacific Basin have good reason to welcome big friends like the United States. Especially in Southeast Asia, Chinese have been victimized time and again by people who envy their industry and success. The vivid images of ancestors slaughtered in racial massacres do not fade easily—all the more reason for overseas Chinese to appreciate America’s continued political and military presence in the region. Protective action is a way of life. During the 1960s, tens of thousands of Chinese were killed in racial massacres in both Malaysia and Indonesia. Even now, Malaysia, in particular, has codified discrimination against its Chinese entrepreneurs. Its laws insist on bumiputra—Malay ownership of corporations. Mindful of ever-smouldering racial tensions, middle-class Chinese in the South Pacific tend to adopt local names and customs. While visiting Jakarta a few years ago, I discovered that local Chinese businesspeople, although Christians, prudently fast with Moslem employees during Ramadan. It is also true that Chinese entrepreneurs and technocrats have been quick to make themselves useful to the governments of Moslem Indonesia and Malaysia. The two largest Indonesian conglomerates, Salim and Astra, are owned and operated by Chinese. Still, for those living in Southeast Asia, implied threats remain. While the influence of American democratic principles is most necessary in countries where Chinese are actively discriminated against, education and emigration have fueled the deepest changes in Chinese values. To most overseas Chinese, American education represents a continuing ideal; and for many, emigration has become increasingly attractive. Since the 1965 changes in U.S. immigration laws, high percentages of new Asian immigrants have been Chinese. But even before that time, political repression in Taiwan as well as in the People’s Republic of China drove thousands of Chinese students to study and work in the United States. America has become the educator of the Pacific Rim. Unlike the exclusionist universities of Japan, where foreigners will not have an easy time finding teaching jobs at Tokyo University, American education is determinedly internationalist. No one has benefited more from U.S. higher education and technological training than the overseas Chinese. In 1990, a year when more than 160,000 students from East Asia were enrolled in U.S. colleges, one-fourth of all American doctorates in electrical engineering were awarded to students from Taiwan. For years, the National Science Foundation has been impressed by overseas Chinese performance in graduate sciences, math, and engineering. While the machines in Chinese entrepreneurial factories often come from Japan, the technology they use is American. In fact, English is the lingua franca of Asian R&D. Clearly, a healthy interdependence has formed between overseas Chinese entrepreneurs and many Americans over the years. While happy to do deals with the Japanese, Chinese businesspeople are understandably nervous about the market-share drives of government-assisted Japanese companies. Nor are they necessarily comfortable with the master-serf relationship between the Japanese keiretsu and their clients and suppliers. Even with trade patterns shifting somewhat for fear of increasing U.S. protectionism, almost one-quarter of East Asia’s exports go to the United States. The American consumer, it is truly said, has been the engine of growth for the Asian Pacific region. The economic connection, however, goes far beyond mere buying and selling. Taiwan’s booming economy was jump-started by the off-shore production of American corporations, and this pattern has been repeated in Singapore and other Pacific Basin countries. By working to match the instructions of U.S. marketers closely, Chinese producers have developed a symbiotic relationship with U.S. business interests. Of course, most Chinese entrepreneurs have little political power to back them up. Some large Taiwanese and Singaporean companies, many of them government-related, can count on support from their economic bureaucrats. But the Chinese entrepreneurial network as a whole is too diverse and protean to allow for the massive government help Japan and Korea give their keiretsu and chaebol corporate groups. Spontaneous U.S. alliances tend to fit Chinese family businesses much better. And in this, American ideals of democracy and pluralism, as well as U.S. technology, provide vital leavening for the capitalist development economies that virtually have become East Asia’s trademark. More important, as we look to Asia’s future in a post-Cold-War world, U.S. concern for human rights, still backed by the greatest political and military power in the region, should remain a strong counter to the dictatorial impulses of the aging communist bureaucrats in Beijing, as well as to the “soft authoritarianism”—to use a Japanese political science phrase—of military leaders in both Indonesia and Thailand. D.Y. Yang of Winbond in Taiwan, who considers his computer chip company to be Chinese, says, “A Chinese company depends less on data and more on intuition, feelings, and people.” At the same time, he notes that no blood relatives, including his children, are part of Winbond. “You have to depend on the system to work. Of course you have to respect the family business structure, but since this is a high-tech company, individual contributions are important.” The commonwealth’s new breed of entrepreneurs have shifted from a survivor mentality to a focus on self-actualization, a goal that reflects Western philosophies and practices. In my research, respondents cited these “soft” factors most often as crucial for improving their businesses in the future: managing growth, nurturing creativity, developing more open communication and confrontation skills, and encouraging professionalization of the organization and smooth assimilation of outsiders. For example, the Acer Group in Taiwan markets its own brand of computer clones in more than 70 countries and is one of the largest personal computer companies in the world. Acer’s employees are encouraged to own shares of company stock; the company’s emphasis on decentralization, doing its own R&D, and creating its own brand name have become highly praised models for other enterprises in Taiwan. Yet CEO and cofounder Stan Shih attributes many of the company’s greatest strengths—especially the stability of its senior managers—to traditional Chinese culture. The Pico Group in Singapore is another amalgam of traditional and Western management styles. Pico includes 300 operating companies in 25 countries, which focus on everything from design and fabrication of exhibits to marketing services to leisure businesses like game centers and Broadway shows. Pico’s 2,500 employees receive bonuses and stock options and can participate in profit-sharing plans. Managers can direct the investment of any surplus from their operating units. Yet Pico was founded by three brothers; and three of its four main business groups still are run by family members. The executive director of the fourth group, which focuses on the new business area of entertainment, is a long-time family friend. In fact, all of Pico’s top managers, half of whom were educated abroad, started out as family friends rather than raw hires. In contrast, the Beijing Stone Group introduced what cofounder Wan Runnan called a “modern Western concept” of business from the very beginning. Stone, which in 1984 started in a two-room office that was formerly a collective’s vegetable shop, grew much larger than any enterprise in the People’s Republic of China during the 1980s. It included more than 40 companies, from computer equipment manufacturers to CAD product designers to technical typesetters—with subsidiaries in various parts of the People’s Republic, as well as in Hong Kong, Australia, Japan, and the United States. By 1989, just before Wan fled the country for his open espousal of democratic principles, Beijing Stone had developed the sophisticated matrix organizational structure favored by many Western multinationals. Wan’s charismatic leadership style alone made Stone look like a Western company. He and the other founders established a strong corporate culture and compensation policies keyed to performance—with salaries much higher than those offered by other companies in the People’s Republic but with fewer automatic benefits like free housing. While Wan Runnan paid the price for moving too fast in the People’s Republic of China, Chinese entrepreneurs are now on the cutting edge when it comes to establishing new democratic processes. China itself has yet to evolve a true model of Chinese democracy; its traditional institutions always have been based on the imperial mode, be they the government, business enterprises, or the family. Yet new business practices often lead to new ways of thinking about political and social organization. Witness the rejuvenating effects of the most recent spate of economic reforms in the People’s Republic of China. Capital as the Springboard The explosion of high-technology industries in Asia and the political opening of China in the 1980s have reinforced and will continue to expand today’s Chinese commonwealth. But perhaps the most important development that has consolidated the commonwealth is how rich many Chinese communities have become. In Indonesia, one individual of Chinese descent, Liem Sioe Liong, is reputed to generate 5 % of the country’s gross domestic product through the Salim Group. And Institutional Investor has estimated that the private wealth of Southeast Asia’s 40 million ethnic Chinese exceeds $ 200 billion. Because of the unprecedented availability of capital, a sophisticated Chinese plutocracy has emerged on the world scene. In effect, these plutocrats are the guardians of large-scale entrepreneurship within the Chinese commonwealth, whether it has to do with building a highway or creating a satellite broadcasting service from virtually a standing start. Billionaire Li Ka Shing’s Star TV in Hong Kong broadcasts entertainment and information services to an Asian market of 2.7 billion. Gordon Wu’s Hopewell Holdings, oversees construction of the highway, which runs from Hong Kong to Guangzhou through the province of Guangdong in southern China. Since the 1970s, the growing wealth of Chinese communities clearly has fueled significant levels of investment across national borders. In fact, cross-border investments alone are responsible for turning the de facto network of loose family relationships into today’s Chinese commonwealth. While the invisible or unofficial capital market of family, friends, and clan affiliations is on the rise, the opportunities provided by official banking and government sources also have increased. For example, Thailand’s Charoen Pokphand Group, an agribusiness conglomerate headed by ethnic Chinese, was one of the first companies to make large investments in the People’s Republic of China. Or take the development funds provided by the Taiwanese government or the Monte Jade Association, which help finance joint ventures and encourage the flow of market information between expatriate high-tech entrepreneurs and their homeland. Chinese entrepreneurs have become the first or second most prominent source of foreign investment in countries such as Thailand, the Philippines, and Vietnam. These entrepreneurial links are forged through extensive networks of ethnic Chinese: Taiwanese to Thai-Chinese, Hong Kong Chinese to mainland Chinese; American Chinese to Vietnamese Chinese. Of the entrepreneurs I surveyed, 52 % noted that more than half of their domestic working relationships were with Chinese principals—and 39 % of their international working relationships were with other Chinese, a percentage that’s much higher than one would expect in a multinational. In general, foreign direct investment in the People’s Republic reportedly has reached more than $ 30 billion, most of which has come from Chinese businesspeople in Hong Kong and Taiwan. But most significant for the emergence of the commonwealth, these investment patterns across borders, forged through cultural links, have become more visible. For example, Western media recently have paid much more attention to Vancouver’s expatriate Hong Kong Chinese, who have invested significantly in Canadian real estate and business in preparation for Hong Kong’s return to China in 1997. Of course, the entrepreneurial network that I have been calling the Chinese commonwealth is not a unified interest group or unofficial “nation.” According to an old saying, “The Chinese are like a bowl of loose sand.” The sudden wealth of expatriate Chinese communities and the new possibilities for business afforded by them still come down to a global patchwork of many small enterprises that, in some cases, have little or no respect or love for one another. Yet entrepreneurs who are motivated primarily by economic self-interest generally don’t let personal animosity get in the way of shrewd business decisions. And with new large-scale business opportunities bankrolled by Chinese money come a range of new financial intermediaries. While these outside deal brokers, bankers, and lawyers are not exactly welcome in the traditional entrepreneur’s orbit, they are nevertheless part and parcel of dealing on a broader financial canvas. “Knowledge Arbitrage” in a New Economy Inevitably, capital abundance leads to greater business flexibility and mobility. The ability to transfer funds is equivalent to the ability to transfer corporate flags across national boundaries. And making such transfers is much easier when the enterprise is not tied to immovable assets. Thus the Chinese entrepreneur—who may still believe in the importance of tangible goods and a closed circle of family to manage them—now finds himself or herself in an expanding social network, trafficking the most intangible of assets. Many of today’s Chinese businesspeople have successfully made the shift from the role of trader in a relatively small market to that of international arbitrageur. In other words, they‘ve moved from the perspective of individuals clinging to a life raft to a view from above that takes in the whole ocean. According to the usual definition of arbitrage, Chinese entrepreneurs have been quick to exploit fully the financial anomalies in Chinese markets. Obviously, the Chinese commonwealth encompasses a wide array of disparate growth rates, investor psychologies, and approaches to valuation. The significant capital markets within the network include Hong Kong, Singapore, Taiwan, the United States—and, most recently, the People’s Republic of China—yet each of these markets often value assets in completely different ways. For example, at its height in 1989, the average price/earnings ratio of a share on the Taiwan Stock Exchange was more than seven times greater than the average p/e ratio on the New York Stock Exchange. That meant a U.S. company with an established marketing and sales arm in Taiwan could, after satisfying residency and regulatory requirements, go public in Taiwan, thereby raising “cheap capital.” Companies like Wang and Qume were among those attempting such strategies. But when it comes to the new opportunities available to entrepreneurs in the Chinese commonwealth, I would like to expand the strict definition of arbitrage. Given the strength of the entrepreneurial network, Chinese businesspeople are well positioned to take advantage of other market differences—a process I call knowledge arbitrage. Precisely because of its scale and diversity, the Chinese commonwealth now includes fundamental differences in labor costs and product markets. Given varying levels of technology development and resources in different countries, an engineer from Taiwan can start a company in Silicon Valley, which then carries out low-cost manufacturing on an Indonesian island—with Chinese financing organized by the government of Singapore. Labor-cost differences, in fact, offer some of the most dramatic opportunities for knowledge arbitrageurs. For example, making shoes in Taiwan started in the 1950s as a low-cost commodity manufacturing industry that took advantage of the country’s low labor costs and Confucian work ethic to produce cheap shoes like plastic sandals for export. Gradually, manufacturers developed higher priced running shoes and other products, and labor costs began to skyrocket in Taiwan. At the same time, business links were forged between Taiwan and the People’s Republic of China, not through official channels but through gray-market mechanisms. Typically, a cash-rich Taiwanese entrepreneur would create at low cost a “paper” company in Hong Kong, using it as a trans-shipment point for goods and services between Taiwan and the cash-starved mainland. Then, in 1987, Taiwan’s shoe companies suddenly began to relocate their operations to the People’s Republic. Manufacturing equipment was transferred through Hong Kong to the mainland, and key personnel from Taiwan moved as well. The Taiwanese Shoe Association estimates that up to 80 % of Taiwan’s shoe companies have moved to the People’s Republic of China in search of labor cost advantages. Another form of knowledge arbitrage involves differing consumer trends in the Chinese commonwealth. Knowledge arbitrageurs who bridge Chinese communities in diverse countries can link products with markets in innovative ways. For example, the Quanta Group in Taiwan, a leader in the consumer business, established itself by representing Western companies in Chinese markets. Under David and John Sun, two brothers who were educated in the United States, the company brought McDonald’s and Disney merchandise outlets to Taiwan in the early 1980s. In many respects, of course, the political opening of the People’s Republic of China now represents the ultimate arbitrage for entrepreneurs in the commonwealth. China offers a huge pool of low-cost labor and untapped natural resources to countries like Singapore, in which labor costs have steadily risen and resources have always been restricted. And China’s 1.1 billion population of new consumers, who have had little access to outside products for decades, are hungry to buy. The recent run on Avon cosmetic packs and Bausch & Lomb optical products in the People’s Republic are just two examples of a wildly shifting consumer focus. Of course, whether social change can keep pace with China’s rapid economic change remains to be seen. The Chinese Communist Party still controls the country’s social machinery and numbers its membership at some 50 million people. Yet the People’s Republic, where gunfire echoed in the streets a scant four years ago, is also a country where its citizens now can watch MTV and count their stock certificates while munching on Big Macs. Such contradictions—and opportunities—abound for today’s Chinese commonwealth and all who can tap into it. The Future of the Fourth Power There’s an old Chinese saying that goes “the shrewd rabbit has three holes.” Taiwanese entrepreneur Steve Tsai has interpreted this to mean having one business base in the People’s Republic to represent the future, one in Taiwan to capitalize on the present, and another “hole” in the United States to serve as insurance. By his account, Chinese entrepreneurs want to be where the action is but where the risks are not—and show little inherent loyalty to home. Steve Tsai’s “shrewd rabbit” metaphor is a good representation of how Chinese entrepreneurs view the world today, their position in it, and how they still may need to change. “Doing business is like driving a car,” says P.T. De of San Sun Hats. “In the United States, everything has rules and regulations, and you just follow the rules, and it’s easy. In Taiwan, even if the light is red, somebody can get through it. If it’s green, there still aren’t rules to tell you how to go.” Obviously, what I’ve been calling the Chinese commonwealth contains no official clearinghouse for coordinating joint ventures or operating as a united economic community. Singapore with its sophisticated technological infrastructure, Hong Kong with its capital markets and trading infrastructure, and Taiwan with its incredible foreign exchange reserves are all major power centers. Yet to the extent that Chinese communities remain apolitical, they can’t act on their own behalf in most host countries, including the United States. Still, Chinese-owned trade shows, electronic databases, consulting firms, periodicals on entrepreneurship, investment banks, business schools, and other institutions will expand the reach of the commonwealth in the future. In 1991, Singapore held the First World Chinese Entrepreneurs Convention, which brought together 800 Chinese businesspeople from some 35 countries. The entrepreneurs themselves have begun to recognize the commonwealth for what it is: a new global power base. At the same time, the Chinese commonwealth is no longer exclusively Chinese. By participating in such a pervasive economic network, potential partners of Chinese entrepreneurs can obtain not only greater access to Chinese-based markets at much lower costs but also access to world markets in general. Such East-West connections will be particularly important to small and midsize companies looking for ever-more efficient ways of internationalizing at an earlier stage in their development. Chinese entrepreneurs also have a great deal to gain from outside joint-venture partners, especially large ones: for example, new brand names, market information, and professional management structures. Yet paradoxically, the continued evolution of the commonwealth depends on most of its entrepreneurs continuing to opt for a small-business management model. Through a global network, many small units can come up with a variety of solutions at an acceptable level of risk. While Chinese entrepreneurs are moving clearly toward a new management model, one that encourages growth and an openness to outsiders when a business is ready to take off, most Chinese companies have incentives to remain small, familial organizations. Such a trend is based partly on Chinese cultural biases and partly on what now appears to pay off in the world at large. In other words, the Confucian tradition of hard work, thrift, and respect for one’s social network may provide continuity with the right twist for today’s fast-changing markets. And the central strategic question for all current multinationals—be they Chinese, Japanese, or Western—is how to gather and integrate power through many small units. The evolution of a worldwide web of relatively small Chinese businesses, bound by undeniably strong cultural links, offers a working model for the future.

The Worldwide Web of Chinese Business

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