29 december 2002

China, Shaolin

From Beijing to Bangkok

Dec 29:
Shaolin Temple, Shaolin Si

We went to Zhengzhou (Henan province) by sleeper train to escape the Beijing cold (minus 10 degrees Celcius - they said it was the coldest winter in China in ten years). However, no matter how interesting Shaolin Si was, it was not worth it to stay there in a hostel for a night without heating in the rooms and hot running water when it is snowing outside.

28 december 2002

China, Beijing

From Beijing to Bangkok

Dec 25 - Dec 28:
Tianenmen square, the Forbidden City and The Great Wall, Beijing

On December 25, after a boat ferry of twenty-four hours (the distance between Incheon and Tanggu is about one thousand kilometers) on Christmas Eve and a bus trip of five hours, we finally arrive in Beijing. We were happy to have a white Christmas in Beijing, but - unfortunately for us - the snow would follow us throughout China...
We stayed three nights in a hostel in south Beijing and saw Tianenmen square, the Forbidden City and the Great Wall at Badaling. Since in China most menus are in Chinese, it is always a surprise what you will get. And try the Beijing duck: it is great. It was remarkable to see in economically fast developing China many Volkswagens - translated in English "people's car". (And more than 50% of the foreign cars were Volkswagen.) I think it is a great compromise in the nowadays People's Republic of China: still a Communist Party, but Western cars and in particular Volkswagen are accepted. (Even though I regard Volkswagen less "capitalist" than other German brands). I have more photos of The Great Wall (at Badaling) and the Shaolin Temple, but I made them with my old camera, developed them and sent the photos home... So Mike and Otto, thank you for letting me publish some of your photos on my website!

23 december 2002

Korea December 2002

Monday, December 23, 2002
(and maybe Tomorrow two friends and I will leave Korea to make a backpacking trip to ChinaLaos and Thailand). The study semester is over. In Februari I will start my internship (at LG.Philips LCD marketing department). Most of my friends have already left Korea... I had a great time and made many friends. I hope I will see them either here in Korea or somewhere else on this planet in the future! (You can visit me in The Netherlands anytime.) My friends and I will first take a ferry to a city near Beijing. We are planning to spend a few days in the following cities/sites: Beijing, Shaolin Temple (Henan), Shanghai, Hong Kong and Chengdu (Sichuan). Since it is unclear how much time we will spend in China, I am not sure I can go with Otto and Mike to Laos, Thailand, Malaysia, Indonesia and Singapore (since they have two months off and I only one). I am looking forward to it! I will try to leave a message on my guest book now and then.

15 december 2002

Opa overlijdt

Op een koude ochtend in december belt mijn Koreaanse familie. "Kom snel naar Incheon. Je grootvader is gestorven." Ik ren naar het metrostation. Boos ben ik. Waarom hem? Waarom nu? Ik heb nog zoveel dingen te vragen. Ik kom aan op een rouwcentrum. De hele familie is daar. Stief-grootmoeder, ooms, tantes, neefjes en nichtjes. Er zijn neefjes en nichtjes bij waar ik wel over gehoord, maar nooit gezien had. Er is een foto van mijn opa in een zwarte lijst en slierten hangen eraan. Vruchten en bloemen zijn er omheen geplaatst.

Ik moet een pak aan. Voor het eerst doe ik een stropdas om. Weet niet hoe die gestrikt moet worden. Mijn oom ziet hoe ik er mee hannes en helpt me. Ook krijg ik speciale rouw gewaden aan. Die zijn gebroken wit. En een muts in dezelfde kleuren. "Je neemt de plaats in van je vader." Braaf gehoorzaam ik. Op een rij staan de ooms en ik de gasten te begroeten. "Aigu, aigu" roepen we steeds. We houden een wake, slapen eigenlijk niet. Drie dagen lang eten we een flatterig soort soep. Tientallen, misschien wel honderden mensen komen langs. Slapen doe ik nauwelijks.

Voor het eerst zie ik oom Kevin, de zoon van de zus van mijn opa. Hij spreekt goed Engels. We hebben het over de geschiedenis van de familie Song (bon gwan: Jincheon). We houden contact. Ik zie dat mijn oudste oom met een andere opa in boeken leest en symbolen schrijft. Het stoort me. Ook valt het mij op dat mijn oudste oom boos wordt om een opmerking die iemand maakt.

Aan het einde van deze drie dagen komt de meest naaste familie bij elkaar in de ruimte. Er is nauwelijks licht. Met ons allen buigen we steeds weer naar de foto van opa. Mensen beginnen dramatisch te huilen. Vooral mijn stief-grootmoeder huilt veel. Het duurt minuten lang, lijkt wel een eeuwigheid. Ik voel niets. Misschien wil ik wel niets voelen. Ik kende hem nauwelijks. Wel schijnt hij veel van mij gehouden te hebben. Daarna moeten stief-grootmoeder, de ooms en ik naar een andere ruimte. Opa ligt daar opgebaard. Met ons allen raken we hem aan. Dat lijkt vreemd. Maar ook lijk ik even heel dichtbij. Geen taalbarrière, geen cultuurverschil.

Ter nagedachtenis aan mijn grootvader.

Confucianism and Chaebol


Throughout the eighties’ and nineties’ of the previous century, I eagerly followed the Korean chaebol. On the one hand I criticized them when they disappointed me, on the other hand I was proud of them when they did well. Nevertheless, they made an impression on me. Representing modern Korea, these national heroes are like favorite sons burdened with the duty to bring a secure future for all Korean citizens (or: state-directed business planning [1]. Quite literally “sons” actually, since boys in Korea traditionally have a more advantaged role in family and society as a whole. Comparing to my own situation, my whole Korean family closely watches my performance: giving me and simultaneously reminding me of the responsibilities that I have.
During my stay in Korea I study the basics of Korean culture everyday. Inevitably, I find out that the roots of Korea are closely intertwined with the Chinese philosophy Confucianism.

What is the secret of these little empires – founded after the Korean War, but finally growing bigger somewhere in the 70s’ after the “Big Push” – who helped transform Korea into a Top-15 global economy in less than 20 years? After the devastating Korean War, South Korea was virtually bankrupt – some even say it was the poorest country in Asia. The giant leap under president Park was impressive, and much is owed to the chaebol of that time. But did the powerful clans really do it themselves alone?
In this research paper I will answer the question: What is the influence of Confucianism on Korean chaebol, and what will their future look like in the 21st century?

The founding of Chaebol
The chaebol owe their establishment to patrons of landed families like LG’s Ku and Samsung’s Yi
[2]. However, they owe their survival and development to the first presidents of the Republic of Korea (ROK).
In order to create a buffer state between North Korea and Japan (Cumings: “the US was willing to indulge certain countries, especially places like Korea sitting on the fault lines of the Cold War”), the US heavily supported the infant Korean economy after the Korean War. The chaebol were the first to benefit from the huge amounts of cash the US poured into Korea in the 1950s and 1960s. And, in return for the lucrative favors granted by president Rhee, chaebol chairmen supported the ruling party – to be charged of it later (for example Yi Pyeong-cheol of Samsung). Nevertheless, the per capita GDP (Gross Domestic Product) grew from a mere US $87 in 1962 to US $ 10,543 in 1996 [3]. Especially president Park (and to a lesser extent Rhee) is known for his “guided capitalism” [4].
After having conquered the local market, the chaebol now received the privilege to export overseas, illustrated by the Export Day established by president Park. During his rule, there was much emphasis on comparing a company with a family. Quite literally, the Saemaul Movement had as its slogan “Treat employees like family”. As the Han and Song China emperors were attracted to Confucianism, president Park and chaebol chairmen were also, because it would depict them as a “Godfather” (or, to help them centralize power as happened during the transfer of power from Tang to Song China [5]).

Chaebol characteristics
Korean chaebol and Japanese zaibatsu (now succeeded by modern keiretsu) share the same Chinese character. Chaebol means: jae (finance) + bol (clique) = wealth family. However, the main distinctions are that the founding families chaebol even now still are in control (whereas keiretsu are run by professional executives) and that chaebol are prevented from owning affiliate banks
During the 1970s, the state owned all banks in Korea who in turn were very soft with regard to lending money towards their favorite sons: the chaebol. A very remarkable fact is that the interest rate during this period was minus 6.7%… Additionally, there literally was a close relationship (inter-marriage) between (top) chaebol officers and (top) government officials. Thus Cumings calls the chaebol groups the “parastate”. These marriage practices can be compared to those during Koryeo dynasty.

The problems of these chaebols were that – before 1997 – they borrowed too much money (to invest in too many diverse businesses), since the lending circumstances were too lenient and the chaebol made no profit with this overcapacity (see figure).
As a matter of fact, in 1996 the profit margin of Samsung and Hyundai (the two biggest chaebol then) was only around 3%. All other chaebol that were smaller (Hanbo and Jinro for example) had even lower profit margins: 1.7-1.9 % [7]. They both collapsed in 1997. Additionally, their debt was between 50-100% of their total assets.
So now what exactly is the (either positive or negative) influence of Confucianism on the chaebol?

Confucianism in corporate Korea
There is a strong influence of Confucianism throughout Korea. After all, it was the state religion for more than 500 years. And, according to Mr. Fukayama (Nobel Laureate 1995), who said it is safe to assume that: "Asian cultural values are more hospitable to paternalistic authoritarianism
[8]" – a typical Confucian trait. In other words, family values can easily become nepotism; consensus could be turned into wheel greasing and conservatism can lead to an inability to innovate [9].
Confucianism (and nationalism!) also helped to motivate the labor force to sacrifice their personal lives in order to work hard for the countries’ welfare. Now I will shortly lay out the characteristics of Confucianism in corporate Korea.
Like in the military, there is a strong hierarchy, top-down decision-making and emphasis on loyalty. To be specific, I mean loyalty towards the employer/network. The network represents the “family”, the inner circle.
On the other hand, to say it bluntly: since managers generally are promoted according to age rather than competence, even dim-witted managers are able to make as much money as their more qualified colleagues (who share the same age). So then why bother excelling in your job when it does not make a difference anyway? One could compare it with the system of the former Soviet Union. Even though it is safe, it is not very motivating at all (especially for the ambitious employee who could generate new business from which the whole company can profit). Nowadays this means that more ambitious students rather work for foreign companies who do appreciate their input and reward them accordingly – which of course has consequences for Korea’s general competitiveness.
But even though there are strong family values – and alleged corruption, Korea’s low Gini coefficient (the lower the coefficient, the lower the income inequality) of 0.34-0.38 from 1965-1990 (global average around 0.50) showed a “relatively egalitarian distribution of income” [10] – which is rare for countries that are in their early industrialization.

Chaebol in the 21st century
Still, Korea’s future looks bright and people have reason to be optimistic. How come? To remain globally competitive, Korea is investing heavily in Research and Development (R&D). Indeed, many PhDs from the US and other western countries are doing research for big chaebol.
Additionally, due to the fact that captains of industry and policymakers together in deliberation councils can openly discuss investments in new innovative businesses (in contrast with, for example: The Netherlands and Germany), chaebol can gain first mover advantage in new and strategic areas with the help of the government.

However, a thing that is bound to change in Korean bussiness life is the (until now poor) treatment of shareholders. If Samsung Electronics could convince its investors of the “goodwill” of its corporate governance, it would be able to attract much more capital from the stock market, invest in new strategic markets and truly become bigger than rival Sony from Japan
And, with “teamwork” – now a popular term in business schools worldwide – it can be easily functional for the Korean chaebol (since they have a Confucian background): as long as it is changed. Since the distinction in Japan, Korea and China is clearly made between “Uchi and Soto” (within the group, outside the group – or “Ren chi Ren” in Chinese: people eat people [12]), and globalization makes the marketplace smaller; now Korea only needs to make the group of insiders (Casa Nostra?!) bigger and the group of outsiders smaller…

Even though in Korea they are omnipresent, in global business most of the chaebol still are insignificant. And: despite the domestic and overseas success of past (Daewoo) and contemporary (Samsung, LG, Hyundai) chaebol, some disapprove of the powerful grip of some founding families on the management board (leading to the collapse of several top-20 chaebol in 1997). How will this develop in the future?
The Confucian influence on Korean chaebol is still strong. Nonetheless, Korea (under pressure from the IMF) was able to close down hopeless banks – which lent too much bad loans to chaebol – swiftly after the 1997 Asian Crisis. This impressive act (in the financial world people hope this is soon to be followed by Japan!) boosted investors’ confidence in Korea. It also symbolically buried Korea’s love affair between the state-owned banks and corporate chaebol – probably even to get away from Confucian ideals when they could endanger Korea’s future as a whole?

In order to continue to be aggressive in the future (and finally be able to compete with foreign companies in the domestic auto industry, for example), the pursuit of R&D should balance out the lack of incentive and downsides of life-long employment of the Korean Confucian-corporate system. Also, Korean chaebol should get ready to meet the real life out there: in other words embrace globalization. Competition will make them stronger and better in the end. Finally: “collective enhancement is only feasible if the individuals forming the collective enhance themselves as well”
[1] Rozman 2002
[2] Cumings 1997
[3] Financial Times
[4] MERIT research memorandum 1994
[5] de Bary 1988
[6] The Economist Intelligence Unit (EIU) Country Profile 2001
[7] Chosun Ilbo 1997, LG Economic Research Institute
[8] Fukuyama 98
[9] Financial Times
[10] Campos, Root 1996
[11] Far Eastern Economic Review
[12] EAMSA conference 2000 INSEAD Singapore
[13] EAMSA conference 200 INSEAD Singapore



de Bary, Wm. 1988, East Asian Civilizations, Harvard University Press, Cambridge
Cumings, B. 1997, Korea’s Place in the Sun, W.W. Norton & company, New York London

  • Campos J.E., Root H.L. 1996, The Key to the Asian Miracle, The Brookings institution
  • Corsetti G., Pesenti P. & Roubini N. 1998, What caused the Asian currency and financial crisis? New York University, CEPR and NBER
  • EIU Country Profile South Korea The Economist Intelligence Unit Limited 2001
  • Hassink, R. 1994, South Korea: Economic miracle by policy miracle?, Maastricht Economic Research Institute on Innovation and Technology (MERIT) Research Memorandum South Korea
  • Richter F-J., Kidd J.B. & Li, X. 2000, Asian Management, A Reconceptualization, EAMSA conference 2000, INSEAD Singapore
  • Rozman, G. 2002, Decentralization in East Asia: A reassessment of its background and potential, Development and society Volume 31 Number 1, June 2002, pp. 1~22
  • SURVEY: THE KOREAS Renouncing heaven’s mandate
  • Jul 8th 1999 From The Economist print edition
  • What would Confucius say now?
  • Jul 23rd 1998 SINGAPORE From The Economist print edition
  • Yet another Asian value
  • Jul 30th 1998 From The Economist print edition
World Wide Web

Asian Values and the Current Crisis, Francis Fukuyama comments in Bank's new 'Development Outreach', Asian Values, 9-3-99 [Online],
[2002 Dec. 18]

Management in Korea: background and traditions, FT Mastering Management Online - Management in Korea background and traditions [Online],
[2002 Dec. 18]

BOOK REVIEW, Business Networks in Asia: Promises, Doubts, and PerspectivesBy Frank-Jürgen Richter, ed., Quorum Books, Greenwich, CT, 1999, 320 pp., JIM Vol_8 No_2 2000 - Book Review [Online],
[2002 Dec. 18]

Asian Values and Civilization, Francis Fukuyama, ICAS Fall Symposium, Asia's Challenges Ahead, University of Pennsylvania, September 29, 1998, Institute for Corean-American Studies, Inc., Francis Fukuyama Lecture [Online],
[2002 Dec. 18]

ICM/Lect4/99, ISSUES IN CONTEMPORARY MANAGEMENT, LECTURE: WEEK 3, 8/8/99, Professor Mark Turner, School of Administrative Studies, ICM+Lect4+99 [Online],
[2002 Dec. 18]

10 december 2002

A giant awakens


China’s entry into the WTO this year will have a huge impact on both China’s internal political and economic environment and the world’s global economy – not to mention multinational corporations. Why multinational corporations? Well, as agents of the ongoing “globalization”, China is an interesting country to invest in – also for its huge consumer market.
Together with Mr Drucker – the management consultant – who asked Mr Welch (the former CEO of GE): “If you already weren’t in this business, would you choose to enter it now? And, if the answer is no, what are you going to do about it?” multinational corporations also have to ask themselves this question.

In this research paper I will present recent political and economic developments in China and its implications for multinational corporations. I will take the telecom industry as an example.

Possibly, Chinese government entered the WTO under strict rules; and there were aggressive reforms by the Chinese government to join it. Some point out that in the years before, many trade barriers for goods had been abolished or at least substantially lowered. Others mention that this only affected goods, and not services (like telecommunications, banking – which will be discussed further in FOREIGN DIRECT INVESTMENT).

The WTO will mean even more cuts in tariffs and greater market access for foreign companies, which means more competition for many Chinese companies. Anyway: due to the WTO entry, China managed to bring in more foreign direct investment (FDI). A big question will be whether the almighty Politburo and Communist Party will benefit from opening its (economic) borders or will fail because of it.

There is a lot of pressure (but also benefits) if China manages to keep its promises it made to the WTO. What are the short- and long-term troubles China will face? Firstly, it has to keep a steady inflow of (in order to comply with WTO’s standards – high quality
[1]) FDI and keep its GDP – 7.3% in 2001 [2] growing.

This brings me to the second crucial point: the labor issues. There is much unemployment in China: especially in the so-called Rust Belt (northeastern part of China). Furthermore, since the price of grain is 15-20% higher in China than the rest of the world, prices will drop under WTO pressure and consequently farmers will have to look for a different job. Officially the unemployment rate stands at 3.6% in urban areas, more likely it is between a grimmer 8-20%.

Thirdly, there is much government debt. This has to do – among other reasons – with the massive government spending during the past years (I will come back to this later). Furthermore, there is the pension problem. And finally, the stock market is filled with unhealthy state owned enterprises.

To add to the misery, there are pessimistic views with regard to China’s (near) future. Mr Chang says that China's entry to the WTO would “shake the government to its foundations”. Of the banking system, he wrote: “It is here (...) that the end of the modern Chinese state might well begin.” Mr Chang said China had about five years in which to sort out its financial mess, including a fast-growing budget deficit, or else it faces “the laws of gravity”
[3]. Mr Hu – who wrote the popular essay “China: the Danger of Turmoil” writes: “China has not yet crossed the most difficult hurdles (...) so I say the real unrest is yet to happen. What happened in 1989 was just a preliminary stage.” Is there any reason left for optimism?

Mr Hu has three positions to take over: general secretary of the Communist Party, state president, and chairman of the Central Military Commission (i.e., commander-in-chief of the armed forces). He already has been the president of the party school in Beijing
[4], where senior government officials are being educated. Since his administration there, the school has encouraged different thinking: such as the development of social democratic parties in Europe (Montesquieu: dividing the state in three ways: an executive, legislative, and judicial part).

Additionally, the implementation of direct elections for village chief proves that the Politburo wants to keep its population as pleased as possible. Mr Li – a Beijing-based researcher who observes rural politics – predicts that in ten years China can have directly elected mayors and maybe a directly elected president by 2020 [5].

Corruption now is far worse than it was in 1989, when it was one of the main causes of the anti-government protests. In Shenyang there was a huge scandal last year, linking many top officials with a local mafia gang. The deputy mayor was executed and the mayor sentenced to life in prison. Despite the inevitable corruption politically there is reason for optimism: provided that the GNP will continue to rise more than 7% each year. But what does the Chinese economy now look like, and is it realistic to assume that the economy can grow more than 7% each year?

Obviously, the large inflows of FDI in the past decades have helped the Chinese economy. The country also has a trade surplus, low short-term foreign debt and large inflows of foreign direct investment. Another bright spot is the rise of tourists into China. However, a recent study conducted by the OECD predicted that China's entry to the WTO could cause the country's current-account surplus to turn to deficit by the middle of this decade. But it said this would not pose a serious risk to China's (huge) foreign-exchange reserves.
Additionally – to keep its GDP growing – there was much government spending; causing a fast increase of government debt. Meanwhile, the vast amount of non-performing loans (NPL’s) in China continues to pose a major threat towards the future. Since banks in China simply have very low solvencies, they cannot provide loans to enterprises to improve their business performance. The official figure of these NPL’s is 25% of total outstanding loans, but the figure calculated by the Brookings Institution is 50%.

To add to the alarming debt problem in China, is the outstanding overall debt of the government. The official figure is 16% of GDP, but the Brookings Institution calculated it could be as much as 100% of GDP. Surprisingly enough, there is little chance of a banking crisis, simply because there are hardly any foreign banks’ branches anywhere in China.

The telecom industry and banking sector are the most protected areas of the Chinese economy. Interesting thing is that the Chinese currency – the Yuan – is not completely convertible. This means that Chinese are limited to do their banking business mainly with shaky domestic state-owned banks while at the same time foreign investors can hardly trade the currency (for instance on the two Chinese stock markets, Shenzen A and Shenzen B, are made up of inefficient state owned companies). I also would like to emphasize that to let the insecure pension funds survive – important to keep social welfare for the less privileged at a certain level, the stock market has to function like Western stock markets (in order to attract foreign institutional investors).

This brings me to another big question: does the Communist Party want foreigners to do business in China? The local government does not: they have too many personal interests in local (incompetent) state-owned enterprises and are afraid to lose control when they give companies too much freedom. I think China has to involve foreigners to let the GNP grow.
But how are the current relations with investors and the rest of the world?

China is exporting much (from primary goods to electronics) and its quality is continually rising. Additionally, Yu Yongding, a senior economist at the Chinese Academy of Social Sciences, says: “one reason for the relatively buoyant exports is that consumers in Japan, the EU and US are tightening their belts and choosing cheaper products.”
[6]. In other words: China is becoming a local engine of economic growth.

China is already importing goods from the rest of Asia (some economists say China will soon replace the US as number one importer of Asian goods) and will continue to do so as long as the economy keeps on growing. For example, China’s emerging middle class imports high-end products from Korea (mobile phones) and Japan (cameras).

How can multinationals approach the Chinese market best? Let us take a look at the telecom industry now.

With China's mobile-phone users increasing at a rate of about 5m a month last year and China Unicom, one of the two official cellular companies, rolling out a new US-standard Code Division Multiple Access (CDMA) network, the country is a market no telecom company can afford to ignore. "It's an exciting time - for the first time it is possible for foreign investors to go into China in a legally sound structure and form a joint venture," says Andrew McGinty, a managing associate at law firm Linklaters & Alliance in Shanghai
[7]. In the past foreign companies were forced to start a joint venture (JV) with a Chinese company. Nowadays, a joint stock company under Chinese law looks to be more interesting for a multinational. A number of multinationals have done this in recent years, most notably Unilever, Alcatel and Michelin. "The restructuring made the business manageable," says Alan Brown, who heads Unilever's operations in China. "So many people find that in JV relationships, their partner's wishes are not aligned and you can't really manage the businesses" [8].

Personally, I think China can deal with the problems mentioned in the chapter WTO ENTRY, provided that it is willing to cooperate with foreign institutions.

Investing in China is interesting for multinational corporations, for the following reasons: cheap labor force, cheap real estate to build factories on, to seek partnerships with Chinese companies and huge consumer market (opened by the WTO).

Other arguments to invest in China could be: to be close to the customer. Another one is to establish a position now with the prospect of benefits in the future. Arguably, the most important one is that corporations are able to cut production costs globally while at the same time be competitive locally. China is now the world's fourth-largest industrial producer behind the US, Japan and Germany. China makes more than 50% of the world's cameras; 30% of its air-conditioners and televisions; 25% of its washing machines and nearly 20% of all refrigerators. For example, Philips formed a partnership with the Chinese company TCL. As a matter of fact, China became a place where the company made its products and then shipped them elsewhere. Today, Philips operates 23 factories and produces about $5 billion-worth of goods in China each year. [9]

On the other hand, exporting to China may be as cheap to produce locally due to the lowered trade barriers and quotas (WTO). According to a LG Electronics executive: “It has been suggested that directly exporting products to China may be even more profitable than producing them locally.” [10]
Additionally, Mr Laudicina (managing director of A.T. Kearney’s global business-policy council) says that: “In previous surveys of investors in China, the majority of companies were not meeting their profitability targets.” [11]

To make things even more complicated for foreign companies, the government itself is deeply involved in business. The Beijing municipality, for example, has stakes in about 16,000 local businesses. The finance ministry owns 100 per cent of the "big four" state banks. The telecommunications regulator is the main shareholder in China Telecom and China Mobile and the television regulator owns China Central Television, the state TV company. [12]

To come back to the telecom industry: can the joint stock company be a solution to the telecom restructuring in China and to boost employment and GDP? "Today you have the right in theory to own 25 per cent of a mobile network, but what does that mean when there are only two licensed mobile carriers, China Mobile and China Unicom?" says Duncan Clark, managing director of BDA (China), a telecom and internet consultancy.
Some operators, such as Pacific Century Cyberworks (PCCW), Hong Kong's telecommunications company, chose to stay out of the WTO-related skirmish altogether. PCCW is concentrating on providing corporate IT services to its clients in China rather than trying to compete with the national telecom companies. [13]

Even though private companies are successful, there is internal opposition of Chinese policymakers. So while the two national mobile phone carriers are heatedly competing each other (even sawing opponents’ cables, smashing equipment, and beating up their rival's staff
[14]), foreigners have prospects of steadily entering the Chinese market – to make listing on of healthy companies the stock market possible and so reinforce the Chinese economy.

I have confidence China will move gradually towards a more Western-like market economy. Even though private companies have many difficulties getting a listing on the Hong Kong or Shanghai stock market, they will continue to be successful. "Our most serious competitors," says Zeng Xiwen, Unilever's spokesman in China, "are private Chinese companies."
[15] However, there should be more action from the Politburo to initiate true reform. Also, multinational corporations should be given more freedom to operate in the vast Chinese market. But to be realistic – having studied Chinese civilization and its emperors (who since the Qin era have been autocratic rulers) – changing the Chinese bureaucracy will prove to be very difficult. While trade partners of China will keep importing Chinese goods, China will not collapse. Ideally, multinationals can do their manufacturing in China, but keep their marketing/branding and logistics at their headquarters (since they are high value adding and profitable).
Clearly, domestic companies cannot handle the massive unemployment alone, which is almost crippling the Chinese economy and Communist Party.

When actually negotiating with the Chinese, one also has to deal with cultural differences. According to Mr Clark – a consultant based in Beijing – on top of the unique Chinese (business) etiquette, there is also regional diversity.
[16] Bob Kapp (president of the US – China Business Council): “Be modest in demeanor. Listen well. Preach little. Watch how others do things and follow suit.”

[1] Chinese Ministry of Foreign Trade and Economic Cooperation 2002
[2] The Economist 13 Jun 2002
[3] Chang 2001
[4] The Economist 13 June 2002
[5] The Economist 13 June 2002
[6] Financial Times 15 March 2002
[7] Financial Times 15 March 2002
[8] Financial Times 15 March 2002
[9] Far Eastern Economic Review 17 October 2002
[10] Nikkei BP AsiaBizTech+Nikkei Electronics Asia, Online Magazine for Engineers and Managers, 2002, [China Special] LG Electronics Targets China's CDMA Handset Market [Online]
[11] Far Eastern Economic Review 10 October 2002
[12] Financial Times 15 March 2002
[13] Financial Times 15 March 2002
[14] The Economist 17 October 2002
[15] Far Eastern Economic Review 17 October 2002
[16] The New York Times, 3 May 2002


  • China in the World Economy: the Domestic Policy Challenges”, OECD, Paris 2002;
  • Integrating China into the Global Economy”, by Nicholas R. Lardy, Brookings Institution Press, Washington, DC, 2002;
  • The China Dream: The Elusive Quest for the Greatest Untapped Market on Earth”, by Joe Studwell, Profile Books, London 2002.
  • Nikkei BP AsiaBizTech+Nikkei Electronics Asia, Online Magazine for Engineers and Managers, 2002, [China Special] LG Electronics Targets China's CDMA Handset Market [Online]
  • Burying the Competition; By Karby Leggett/SHANGHAI and Peter Wonacott/BEIJING
  • Issue cover-dated October 17, 2002; Far Eastern Economic Review
  • How to get a foothold in China; By Liz Alderman (IHT); Friday, September 6, 2002
  • China Dream; By Tom Holland/HONG KONG; Issue cover-dated October 10, 2002; Far Eastern Economic Review
  • ASIA'S WOES ARE NOT JUST CHINA; By Peter Wonacott; Issue cover-dated October 17, 2002; Far Eastern Economic Review
  • Philips Switches Tack in Hard Market; By Peter Wonacott; Issue cover-dated October 17, 2002; Far Eastern Economic Review
  • In China? Mind your hat By Craig S. Smith (The New York Times) Friday, May 3, 2002
  • A dragon out of puff; Jun 13th 2002 From The Economist print edition
  • Colour me grey; Jun 13th 2002 From The Economist print edition
  • Seeds of change?; Jun 13th 2002 From The Economist print edition
  • Money worries; Jun 13th 2002 From The Economist print edition
  • No rural idyll; Jun 13th 2002 From The Economist print edition
  • Drastic medicine; Jun 13th 2002 From The Economist print edition
  • Urban discontent; Jun 13th 2002 From The Economist print edition
  • Be prepared; Jun 13th 2002 From The Economist print edition
  • Dialling the markets; Oct 17th 2002 HONG KONG From The Economist print edition
  • Set them free; Oct 10th 2002 From The Economist print edition
  • Not in the club; Oct 10th 2002 HAICHENG From The Economist print edition
  • The Pearl river deltaA new workshop of the world; Oct 10th 2002 HONG KONG From The Economist print edition
  • A lucrative new market is calling: TELECOMS by Joe Leahy: China's mobile-phone users increased at a rate of about 5m a month last year.
  • Foreign vendors are desperate to move in Financial Times; Mar 15, 2002 By JOE LEAHY
  • COMPANY TRENDS by Richard McGregor: The joint venture is being replaced as the modus operandi of foreigners in China
  • Financial Times; Mar 15, 2002 By RICHARD MCGREGOR
  • A crucial transition is ahead: ECONOMY by James Kynge: The challenge is to keep GDP growing fast enough to provide a cushion against the shocks that accession will bring
  • Financial Times; Mar 15, 2002 By JAMES KYNGE
  • Reform, but in a communist state: POLITICS by James Kynge: Although WTO accession will force the pace of change, a western-style democracy is unlikely in the near future Financial Times; Mar 15, 2002 By JAMES KYNGE
  • Expectations look set to outstrip the reality: BANKING by James Kynge Financial Times; Mar 15, 2002
  • Problems on the road to liberalisation: China has joined the WTO on stricter terms than fellow members. If it is to succeed in opening its markets, the world should resist using protectionist provisions Financial Times; Mar 15, 2002 By NICHOLAS LARDY

5 december 2002

Sun Tzu


Sun Tzu’s “The Art of War” is time and again associated with success and perhaps that is why it has become a required reading at many western business schools
[1]. This book was, is, and will continue to be very influential, as people use paragraphs from this opus regularly.

The Warring states period (403-221 BC)
During this period several kingdoms compete with each other for domination, while in the end only one kingdom survives: Qin state. During this period there is brutal warfare, cavalry replaces the war chariot, and there is the invention of crossbow

In this age Sun Tzu – author of the Chinese classic Ping-fa (“The Art of War”), the earliest known study on war and military science – lives. The book is attributed to Sun Tzu (personal name Sun Wu), supposedly a military strategist and general who served the state of Wu (Encyclopædia Britannica).

Sun Tzu’s “The Art of War”
Even though Sun Tzu is widely admired in the Far East, his work is less known in the West than for example Karl von Clausewitz, a great Prussian military strategist. The reason is that Sun Tzu’s work is very theoretical and instructs us little about actual procedures.

Or, as professor Michael I. Handel (who was an internationally recognized expert on, and interpreter of, the thought of the German philosopher of war Karl von Clausewitz. He also consulted with the U.S. military in planning the use of deception against Iraq in the 1991 Desert Storm war) put it: “Eastern Psychology and Western Mechanics”

At military academies, students read 2,000-year-old ideas of Julius Caesar and Sun Tzu. Nowadays students complain that there is too much emphasis on old theory and little studying on the likely shape of future wars
[4]. Given that “The Art of War” was originally written in Chinese, texts generally are very flexible in its interpretation.

It is clear that the reader of “The Art of War” has much room to interpret and apply Sun Tzu’s work. Still, multinationals use “The Art of War” in their strategic planning. After all, Sun Tzu emphasized the importance of flexibility, speed and timing in the successful pursuit of war
[5]. Through excellent preparation, future opportunities can be seized.

Many countries around the world are in a recession now, and countless businesses are struggling to keep their profit margins as high as possible. What should executives do under these harsh circumstances?

X. Terrain
25. Look upon your soldiers as your own beloved sons,
and they will stand by you even unto death.
Cary Cooper, a professor at the Manchester School of Management, says that companies “need to re-establish the psychological contract between employer and employee”, a contract that has been eroded by the downsizing of the early 1990s and by the changed attitudes of younger employees to what is fashionably called the work-life balance”.

In other words, the relationship between most companies and workers needs to be changed – mostly emotionally. This can be achieved by following the well known proverb: "Rule a great state (corporation) as you cook a small fish". Be gentle and friendly towards your staff, and they will be gracious in return.

Or: Plan for what is difficult while it is easy, do what is great while it is small. The most difficult things in the world must be done while they are still easy, the greatest things in the world must be done while they are still small. For this reason sages never do what is great, and this is why they can achieve that greatness.
[8] In other words: it is better to prevent war than to wage war.

The Way (Daoism) always creates order. By following the way, you will be in harmony – as nature always stabilizes itself.

Nowadays executives like reading Michael Jordan as much as they do reading Sun Tzu. Leading the way in front of other people requires strong interpersonal skills, a great deal of flexibility and willingness to understand.

I can understand that it can be equally interesting to read books of great athletes, as running a company can be compared with playing in a sports team. Still, I consider Daoism and the principles of Sun Tzu an important way of living your life (in harmony with yourself and your surroundings). As long as there is “Movement Ahead” – like Lao Tzu told us: The way that can be spoken of is not the constant way), harmony will come automatically.

[1] 2001, ‘The ancient art of making money’, The Economist, 5 April
[2] Shirokauer, C. 1989, A Brief History of Chinese and Japanese Civilizations, Harcourt College Publishers
[3] Handel, Michael I. 2001, Masters of War: Classical Strategic Thought, Frank Cass New York
[4] 2001, ‘A sense of history’, The Economist, 27 September
[5] 2002, ‘The return of von Clausewitz’, The Economist, 7 March
[6] Sun Tzu on the art of war: the oldest military treatise in the world, Giles, Lionel, ChEng-Wen Pub
[7] 2002, ‘The return of von Clausewitz’, The Economist, 7 March
[8] Sun Tzu, 1988, The Art of War, Shambala Publications, Inc, Boston