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Your Chinese-American VP Don’t Know Diddley ‘Bout China Law And I Have Friggin Had It.

Posted in Legal News

Before my law firm hires anyone, we make sure they do not have a problem with swearing. Because I swear. A lot. I know I shouldn’t, but darn, certain swear words are absolutely critical for communication. But when I started this blog, I swore (pun intended) I would strive never to write anything I would not want my kids to see. This meant not swearing. Now that my youngest recently turned twelve, I am constantly tempted to really let loose, and I have never been more tempted than today.

But I have chosen to abstain and use weird quasi-British language in the post title instead.

My temptation stems from my anger at always having to deal with (or clean up from) the messes created due to a strange belief that if someone is Chinese, no matter what their education, training, and/or experience, that person must be expert on both Chinese and international law. Let me explain.

I have had it with US companies believing their Chinese-American Vice-President (or whatever) is somehow qualified to practice International law.

Let me back up.

Many of our clients that do business in China have someone in their company driving their China business. This person is typically a Chinese-American who has been living in the United States for ten or more years. This person is oftentimes an engineer or some other technical person. This person typically is good at his or her job and has risen to a trusted position. This person is usually trusted by the company and the trust is usually justified. (If not a Chinese-American, this person is usually the Chinese national, based in China, who was instrumental in bringing the American company into China.)

In spite of this Chinese person’s lack of ANY legal training or business training, this person is typically chosen to be the lead person to start up operations in China. The company is of the view that because this person grew up in China (even though this person probably has never done any real business there and has not been back but for a vacation or two in the last ten years) this person must know everything about the legal and business aspects of starting and running a company in China.

Everything.

Now step back, if you would, and think about the absurdity of that. Please.

Now once this Chinese person is put in total charge of bringing his or her company into China, what is this person to do? Can he or she tell the owner “hey, wait a minute, I left China at 15 years old, and I am an engineer, not a marketer and not a lawyer?” He or she could, but is this going to happen? Of course not. This person instead is delighted to have essentially been handed an entire country to run and this person is going to run with it. So this person acts like starting and running a foreign company in China is a piece of cake.

Now I would not have a problem if these companies simply went with their Chinese “experts” and did not call us until they want us to scrape them off the floor. Our China lawyers have gotten a million such calls from companies that have gone into China with just their Chinese VP giving the legal advice and our response to their problems is nearly always the same: “Your chances are not good, but for a lot of money we can try. Oh, and the next time you go into a foreign country, you might want to consider hiring someone who actually knows what they are doing.” Okay, so I’ve never really said that, but darn it, I have really wanted to.

But now that Americans are getting “smarter” and word has gotten out on how badly other American companies have fared by going into China the wrong way, they are starting to call us before it is so late that all I can tell them is how badly they have done things. And one would think that would be good, right? Well, not always.

For you see, some of these companies want us to “oversee” their trusted Chinese VP and that is where the problems lie. We have had a number of these in the last year and they tend to be really bad news.

I am going to explain some of these, but be vague enough, and mix the facts enough so that there is no way anyone can identify themselves. In other words, these stories are all based on facts, but any resemblance to anyone living or dead is purely coincidental. The bottom line on all of these is that the American company (and in one case British company) start out all worried about how my law firm’s involvement might be seen as ”stepping on the toes” of their Chinese VP.

1. Science related company contacts us about going into China. Owner brags about his Chinese VP. Chinese VP has PhD from top U.S. university, in some sort of science. Chinese VP has been with company for 20 years. I later learn Chinese VP speaks Cantonese, not Mandarin. Chinese VP has a great government contact that will set this company up in a top tier science park at a terrific deal. Company wants to hire my law firm to “make sure” everything is being done correctly from the legal side. I quote our flat fee price for forming/registering a China WFOE (Wholly Foreign Owned Entity) and the owner then asks me if we can lower it because his Chinese VP will be doing “nearly all” of the work. I tell him that his company can pay us by the hour and that way we will only be charging for what we do and the more his Chinese VP can do, the less we charge. The owner is delighted. He tells me he is not so much concerned with the money, he just does not want to appear to look as though he does not trust his VP.

So we start working with this Chinese VP and within about 2 minutes, it becomes apparent to us that this guy knows zero about forming a China WFOE. ZERO. We end up spending around six hours just explaining the basics to him.

This VP then comes back to us with a lease agreement that is both totally bizarre and absolutely unacceptable for a WFOE. There are certain requirements for WFOE leases and these requirements can vary from city to city. We spend massive time explaining to this guy why this particular lease will not work and what needs to be done to get one that will. We end up pretty much having to write a full lease in Chinese by way of explanation.

We write off about half our time dealing with the Chinese VP and send it to the client. Guess what? The Chinese VP complains about the time we spent on it. Of course he does, because if his boss knew how long we spent trying to get the Chinese VP up to speed, the Chinese VP’s role in China would be jeopardized.

We then told the client that what we were doing was not working and that if we continued to work with his Chinese VP on an hourly basis in forming the WFOE, we would probably end up charging FIVE times our normal flat fee rate for WFOE formation. We told him that we could either do the WFOE at our normal flat fee, with credit for all time already billed, or he just tell us what he thought to be the fair amount for what we had already billed and we go our separate ways.

2. Technology related company contacts us with a tax question regarding its Joint Venture (JV). The company tells me what it is planning to do and I tell them their plan will not work. The company is planning to gain a 50% interest in a Joint Venture by contributing nothing to the joint venture besides some Intellectual Property (IP). I tell this company Chinese law requires the foreign company in a joint venture tcontribute at least 80% in cash for joint venture ownership. I tell this company that I have seen these situations before (with increasing frequency, actually) and it will not end well for him. The Chinese company gets the Western company’s technology with the Western company believing it is getting ownership in the Joint Venture company, when in reality it is not. But this guy insisted his deal was good because his Chinese VP had told him it was good and because the local government had approved it. I told him that we would not represent him on a deal we knew would eventually fail.

3. Joint Venture Number 2. British company comes to us with joint venture papers that purport to give it exclusive distribution rights for the joint venture’s product outside China. The British company’s Chinese VP has already signed off on the deal but the company wants a lawyer to look at it before the company actually signs, but “just to confirm everything is okay”. We look at the papers (in Chinese) and notice that the exclusive distribution rights are coming from the Chinese joint venture partner company, not from the joint venture itself. We explain why this will pose problems for the British company and why we do not think it was an innocent mistake. The Chinese VP is furious with us and tells the company we do not know what we are doing. Fortunately, the British company understood exactly what was happening and it ended up walking away from this Chinese company. This British company ended up going into China on its own and it has thrived.

I once talked about this Chinese VP phenomenon with a couple of Chinese lawyer friends of mine and they told me that Chinese companies love doing business with Chinese VPs because they know the Chinese VP is in an impossible situation. They said that the Chinese companies build up the confidence of the VP by praising his knowledge of China and by welcoming him or her into the club of people who “really know how business is done in China.” The Chinese company then flips around and takes advantage of the VP’s unwillingness to lose face by admitting he or she needs help. I am of the view that these Chinese VPs are seldom on the take; rather, they are the ones being taken.

What are you seeing out there?

UPDATE: Someone has complained vociferously about this post, claiming I have unfairly generalized. I disagree, but nonetheless want to make clear that I am absolutely not saying that no Chinese Vice President knows Chinese law. What I am saying is that Chinese law for foreign companies is very particularized and the only people I know who truly understand these laws and all of their nuances are the lawyers who deal with them every day.

The same is generally true with respect to the United States as well and I wrote a post on this a few months ago, entitled, “Registering Your Trademark In The US And China On The Cheap.” In that post, I talked about the problems we are seeing with companies’ failing to hire proper trademark counsel for their US trademark filings and how those failures were impacting their China business.

The smart way to go is to retain the right person for the job and the right person to do legal work is an attorney. I have many non-lawyer clients who are very knowledgeable about law, but they would not hesitate to admit their legal knowledge does not rise to that of an attorney. And I would think they would also recognize that having grown up in a country does not make one an expert in that country’s laws, particularly those laws that relate to foreign business.

Was I off base here?

  • asf

    Great blog by the way. Yours is one of the few blogs, about China no less, that offers real insights and understanding on issues.

  • Anonymous

    Great blog… now the problem is that if you are a china insider (having worked and lived in China for 20 years) how do you come about convincing HQ that a China VP may not necessarily be the best option without making it seem as though you are trying to talk him down?

  • Judge Not Reinhold

    Walk away when you hear the word “oversee.”
    It means, “We want to hire you, but we don’t really want you to contradict the decisions made by our people, and we certainly don’t want to pay you to make sure that everything is done correctly from Step One, but we’ll refuse to pay your bills and we’ll sue you for malpractice if it goes badly.”

  • http://www.allroadsleadtochina.com Allroads

    Great post.
    In short, I would say that EVERYONE in China who is working on the client services side of the business has had similar experiences where the ethnicity of the manager trumps experience.
    Now, are those experiences the majority or the minority I guess defines whether or not you overstated the situation, but regardless, the number of cases (and the companies where this issues exists) are not insignificant… and your reflections offer three of your own experiences.
    As for what I have seen.. you have pretty much summed it up for me, but where I differ is that I usually will not take the case as (from a research and strategy perspective) I have come to understand that when I am working with a manager who is inexperienced in China (yet believes they are experienced) the projects have changing scopes and conflicting results on a level I personally do not care to deal with. Call me crazy, but I actually enjoy the work I do.. and want to enjoy the work I do.. so, as much as the fee matters, so does knowing that I am working with a client who understands the value of my service.
    R

  • Charlie

    I can’t add a thing; all I can say is “Amen.”

  • David

    As a “white faced” foreigner living here I get surprised/ slightly jealous when I see some returnees/ ABCs/ BBCs who don’t really know much about doing business here get sent to China on nice expat packages. Some end up becoming very local in their thinking – lots of internal politics while they defend their turf at any price.
    Another dangerous combination is the returnee who got an MBA overseas – while they may not understand business here they have learnt all the phrases & bullsh*t that MBA school teaches them.

  • http://www.sinofactory.net/blog David Levy

    Dan,
    You are NOT off base. Operationally, I have had to turnaround and restructure two US-owned facilities. Both trainwrecks were caused mainly by undue trust, authority and expectations placed on the overseas educated ethnic Chinese executives. This is NOT a rant against Chinese or “huaqiao” in high positions. It is a rant against the undue expectations placed on these individuals based solely on their ethnicity.
    Besides the two organizations I’ve turned around, I’ve turned down the positions fixing up several others that were down (or were going down) for the count for similar reasons.
    It doesn’t mean that ethnic Chinese can’t do a good job– of course they can do as well as anyone else. It just means that choosing a VP based on ethnicity, which is what far too many US companies do, is a recipe for disaster. (and it doesn’t matter which ethnicity we are talking about here).
    Here are the “good excuses” I’ve heard for hiring an ethnically Chinese but otherwise unqualified GM/VP/President:
    1. He knows the language and culture. (So hire him as a translator)
    2. He has GREAT guanxi. (May sound good, but this one’s the kiss of death!)
    3. He is from the area where we are setting up, and knows the local supplier-base really well. (What’s wrong with this picture? That company is now faced with starting up a second time in a new area.)
    4. He will use his Asian connections to sell part of our startup to a large Taiwanese company who will take it public within 2 years. (This company called me back 2 years later— things didn’t work out as planned).
    Anyway, hiring someone based on ethnicity while ignoring his or her inability to do the job is a failure of leadership. When it comes to China, US companies seem eager to accept excuses for offloading the decision-making required for startup and operations.

  • William

    Sadly, it’s not hard to imagine these exact scenarios happening hundreds of times every year. “Jim, you were born in Taiwan. You’re just the one we need to lead our new China division.”

  • Justin

    Off base? No way. I have seen the exact sort of thing in my line of work (which I am not going to reveal) many times. You are right to blame the owners of these companies too as that is exactly what I have seen also. The company owner puts a Chinese person in a position of power and then feels like he has to go along with whatever that person says about China and even becomes fearful about bringing in true experts. It is a combination of things but the real problem is the owners who are idiotic enough to trust their Chinese execs on every single issue, when they would never do the same thing with their other execs. We have all seen this and so I thank you for having the guts to write about it.

  • Frank Rizzo

    You mean just like English language schools in China assume because someone is white they know how to teach?

  • Jacko

    I too have nothing to add beyond affirming “Charlie’s” “Amen.” Oh wait, can I add a “brother” to that?

  • http://www.millionthanksbook.com manuel

    thanks for this post

  • Wank Malarky

    I remember an American VP that was convinced he was an expert on China M&A and didn’t need advice because he’d once been involved in buying a company in Haiti. The China company ended up being totally corrupt and they had dropped a fortune on it.

  • http://cnreviews.com Kai

    Dagnabbit, Dan still won’t swear?
    Another great post, Dan!

  • Paul Maidment

    What’s quasi-British about your title? Diddly is from Diddly Squat, Depression-era American slang, while British English usage for the euphemism three words from the end would be effing rather than friggin’. Apart from that the post is absolutely on base, or, rather, on the button.

  • anonymous

    Yes,yes, yes! And the same may be said for returnee lawyers who don’t actually know anything about law in China—besides what their friends in ministries and potential partner companies tell them.
    The road is paved with Western business people, American, European and Australian, who say “You have to take risks in business–of course they will pay us. Why shouldn’t they?” Why indeed.
    (And are you so sure these returnees aren’t on the take? Pretty incredible gullibility amongst them.)

  • http://www.asiahealthcareblog.com Damjan D

    You mean just like Michael Scott assuming that Stanley is good at basketball? http://www.fanpop.com/spots/the-office/videos/10539/title/office-season-1-episode-5

  • Kellen P

    What Frank Rizzo said. Or conversely how just because they’re not white they can’t teach.

  • William

    Dan,
    Pretty much the same thing as #1 happened at my company. We used our Chinese VP to go into China. He’s a very good engineer but we forced him into a new role and he had no experience for it. We asked that he form our WFOE in China and he did it. A few months later we learned that it had been formed all wrong and we had to go out and hire a really expensive attorney to fix it. We had to shut down our first WFOE and form a new one. It was a disaster and it was NOT our VP’s fault. It was OUR fault. He now supervises our engineering in China (splitting time between here and there) and he is doing his usual great job.
    You are dead on here with this post and I hope you save other companies like ours.

  • http://www.chinasolved.com Andrew Hupert

    So happy that someone said this, and even happier it was you. Don’t have much to add to what you and others have already written, except to say that I agree 110%. I teach at NYU’s Shanghai campus – and about 35%+ of the students are of Chinese descent. Very smart, hard workers & lovely people. But there is this pervasive notion that because they have Chinese lineage that they possess some mystical understanding of the way things REALLY work in China — that I will never achieve. Needless to say, this post will be required reading. Thanks Dan.

  • ceh

    This is the truth, Dan. Saw a great JV go up in flames because some Australian huaqiao was put in charge of the entire China operation for no apparent reason other than his ethnicity. He hated Beijing (choosing to commute from his airport villa), didn’t even speak Chinese, had absolutely no guanxi, burnt bridges left and right with a fearsome combination of stubbornness and incompetence, and hadn’t a lick of common sense. With so much kindling, it didn’t take long for the inferno to erupt.

  • anon this time

    Hate to be the wet blanket at the party here, but I have seen the reverse a lot too – guys who get in their positions because they aren’t Chinese. I am not sure what the split is, but I know that there are actually a lot of managers, QC guys, who got in because “you can’t trust the locals” etc. I have seen it ad nauseum at so many levels, even down to bartenders from the Philipines who get hired because a HK or Taiwanese owner wouldn’t trust a mainlander.
    And when they fail, it’s not chalked up to some failed ethnic policy, it’s maybe because it’s difficult to do business in China, or they didn’t do their due diligence, or they were cocky because they spoke Chinese but had a “western mentality”, etc.
    excuse the slight alteration:
    a strange belief that if someone isn’t Chinese, no matter what their education, training, and/or experience, that person must be expert on American/British/OZ and international law.
    For every hypenated Chinese who gets hired based on his ethnicity, there are two or three more who won’t get hired because many people, including A LOT OF their own countrymen, fawn at the feet of any white guy with a nice degree and crisp English. The ESL Industry in China is notorious for this, and ESL is – by far – the biggest industry in terms of hiring foreigners in China.
    And cleaning up someone else’s mess can pay pretty well. Speaking just from my own experiences, I was cynical and snarky about the hiring process in China, but I wasn’t too cynical to cash the check.
    Don’t hurt your arm, gentlemen.

  • asf

    I think there are two issues people are discussing here.
    1) Having an ethnic Chinese-American leading the venture does have benefits. I mean, at a typical company, would you rather send someone who at least some cultural and social understanding of China, or some non-ethnic Chinese who has absolutely no understanding.
    2) That being said, this ethnic Chinese-American probably does not have the full set of skills to manage such a complicated task successfully – nobody would. So it is the company’s responsibility to make sure the proper skill sets, such as chinese legal knowhow, are complemented and make explicitly available.

  • jms

    I think the problem with your post (and the majority of the comments here) is that it gives the impression that the majority of Chinese Americans/Australians/Canadians are engineer nerds who can only excel in labs and not in the marketing/business world (the stereotypical white people view of Chinese)… that is not true at all.
    The best employees for a foreign company’s China operation tend to be bicultural/bilingual and are sophisticated, flexible, adaptable and business savvy. There are plenty of overseas Chinese with such qualifications.
    If a foreign company hires people solely based on language abilities, then they are just plain stupid. It’s common sense that when you hire someone to run a business operation, they need to know how to run a business in addition to language and cultural skills.

  • WUYiuChen

    Typical American stupidity and ignorance. Yet again, Americans try to blame their own mistakes on other people and try yet again to escape all accountability. Who hired these inexperienced Chinese American VPs? Yes, the American companies who are ignorant of reality in China. How many moronic western people with advanced degrees have touted themselves as “China Experts” to Western Companies without knowing the language, culture, or it’s specific nuances?? These idiots are far worse than any Chinese American VP I can think of. What cracks me up is the fact that American companies buy their crap hook, line, and sinker. Because they believe a white guy who’s read some China reports and spent 3 months in China is qualified to be a “China Expert”. Racism and stupidity underline American policy in China. You people have absolutely no respect for Chinese culture and only see $$$ signs.

  • anon this time

    To take Dan’s point further, I have a tech client who employed an Asian-American to manage a group of their providers in the APAC region. She was chosen in large part due to her ethnicity, with the assumption, I’m guessing, that it gives her insight into Asian cultures and Asian modes of business (as if there were one single ‘Asian’ thing). The problem with this is that she was adopted as an infant by white American parents and speaks no other language than English (and with a strong upper midwest, possibly Minnesota, accent – no offense to midwesterners, Dan).
    Last week, she scheduled a training session for her providers in greater China. She scheduled it for Oct. 1 at 10:00am Beijing time, right when the parade started. Her poor Chinese providers came into their office, dialed into the conference, said hellos, and promptly turned on the TV, which I heard in the background throughout the call. But our girl in America was a trooper and plowed through the conference call, mostly talking to herself. She got the job done, in her mind anyway.

  • Chris

    ASF – that is the whole point of the post. Chinese-Americans DONT have some cultural and social understanding of China. They grew up in US/UK/Aus etc. My grandfather was born and raised in Italy and then came to the USA. My father was born in the US and so was I. I have never been to Italy, however, my grandmother cooked a great lasagna and my great uncle always broke out an accordion at our family parties. Does that make me a good candidate for a posting in Milan? Becuase I have SOME cultural and social understanding?

  • anon again

    I am amazed at how angry some people are getting at all this. Neither the post nor as far as I can tell, any of the comments, are saying that Chinese are in any way less capable than anyone else. The whole point here is that it is ridiculous to expect someone who is not a lawyer to be the lawyer for a foreign company in China simply because that person is Chinese. Does anyone really disagree with this?

  • Bob Haag

    He’s just saying a lawyer needs to be hired for China because US VP’s and engineers aren’t legally smart.

  • James G

    I think what some people don’t like concerning many of the comments – and what I don’t like – is the tone that is on one hand self-congratulatory, and on the other kind of mocking. There also has always been an under-current of something that jms above summed up:
    “I think the problem with your post (and the majority of the comments here) is that it gives the impression that the majority of Chinese Americans/Australians/Canadians are engineer nerds who can only excel in labs and not in the marketing/business world (the stereotypical white people view of Chinese)… that is not true at all.”
    I have seen this often, and I am not Chinese. I mention that I am not Chinese because here on the internet, it’s easy to be dismissed as a brainwashed or nationalist Chinese if you take westerners to task beyond a certain point.
    Many times I have been told in confidence that Chinese – be they returnees, never-left mainlanders, ABC’s – don’t have “the stuff” to do business with western firms. Oh sure, they’ve got the language down pat, but when it comes to the nuts and bolts, nah. Now, will anyone put it that crudely? Usually not, especially in the current PC climate (unless we are down at the pub) but the message is pretty clear. When I began hearing this, I was surprised because far from coming from China newbies, it usually came from experienced businessmen, embassy workers, or the ubiquitous “consultants”.
    I would bet that a good many of the so-called experts who comment on topics like this, with anecdotal stories of incompetence, do not chalk up the incompetence of non-ABC/CBC to their ethnicity. I have been reading CLB for years now, and I never cease being amazed at the stories of brazen greed and towering foolishness Dan regales us with. But how many of these tales are about people who were sent to China because they weren’t Chinese? I mean, people are most likely to trust someone who looks and behaves in a manner similar to them, right?
    It is laughable that “foreign born Chinese” are being singled out for arrogance or incompetence based on their ethnicity. If a bunch of them have gummed up the machinery, might that as well be a result of their American-ness and not their ethnicity?
    Listen, I can remember when companies specifically sent white westerners to China based on nothing more than there skin color and passport. I have been told “they needed a white face on the ground to get things done, someone who understands both sides of the coin”. I’ve heard that verbatim, and in very slightly nuanced forms many times.
    What’s interesting in this discussion is that a lot of the more educated and traveled Chinese I know really sit down and painstakingly think to themselves about the way their nationalism and cultural background affects their view of other countries in ways good or bad. Sadly, many westerners don’t do this beyond a bit of slightly self-deprecating “I know I’m not perfect, but…”
    I would sit this one out if I weren’t sure, but I am. It’s an extension of the residual colonial mentality with which we ALL tend to view China. I’ve seen it not just in China, but since China is the topic at hand, there it is.
    Here is my anecdote: when I first set foot in China years ago, I met several of guys who were going to make a killing, the money was there, it just needed to be gently eased out. All of them “typical” westerners, but with dual majors in Chinese and economics, or Chinese history, etc. Sharp guys from sharp schools, a few of them Ivy League. I don’t think any of them lasted more than a year or two, and none of them made a killing. Some of them found that wealthy Chinese wouldn’t just buy this or that fund, or blindly invest in X simply because an American from Bennington or Dartmouth (just as an example, haha) was able to pitch them in pretty good Chinese. Some of them opened snazzy websites and began calling themselves analysts or consultants. Many taught English, but none came close to “making a killing”.
    I guess I could chalk up their failure to their ethnicity, but then that would be a slap to the many guys who have made the cut. And equally so, there are a lot of returnees and overseas doing well, and believe it or not, some of them actually were able to make the transistion due to ethnicity.
    Ultimately, I think a lot of people don’t like there to be any open shows/discussion of ethnicity and race in hiring, especially coming from the west, where we don’t do that sort of thing, *cough cough*. However, anyone who has been paying attention knows that if there were truly blind, merit-based hiring and posting of workers to China, the landscape would be vastly different.
    Don’t forget, Chinese people make a HUGE percentage of the students in American universities, and not just in the sciences. I am certain that if you are truly familiar with China, you can think of some ABCs or returnees who got the job due to ethnicity and delivered.
    This thread raced (pardon the pun, ha) to nearly 30 comments in around a day. I’d say there there are lots of ideas to be considered here, for those who care to look.
    Anyway, thanks to Dan for providing us room to discourse. Nothing wrong with a little back and forth, no?
    :-)

  • the running man

    I just want to say that this is a cultural issue, not a racial issue, and perfect for reasonable discussion. It is the Chinese themselves who have created a society based on racial delineations.
    Must be nice, to have that card to whip out at every friction.

  • asf

    @Chris and others – it’s always hard to make generalizations. Yes, some ethnic Chinese americans are so far removed that they have no social or cultural understanding of China. But most Asian-americans in the US are first or second generation (the bulge of asian immigration in the US after the 60′s), who still share many cultural ties with thier ancestral lands. I agree that in another generation or two, the cultural and social benefits will be wiped out. But as it stands now, I repeat my point: in a typical western company, is there anybody better? All else being equal, would sending a non-ethnic Chinese person to lead the venture have resulted in a better result. I highly doubt so. I think a lot of the heated discussion was generated at singling out ethnic Chinese as incompetent in leading a venture, vs. the company actually being incompetant.

  • asf

    Let me illustrate further how this article could have been written in a less incendiary way. The title should be:
    “Your expat VP doesn’t know diddly about chinese law”
    and then in the body, some to the affect:
    “Many companies believe sending Chinese Americans will solve the problem, but it does not… as I have many examples of”

  • http://twofish.wordpress.com/ Twofish

    Harris: In spite of this Chinese person’s lack of ANY legal training or business training, this person is typically chosen to be the lead person to start up operations in China.
    Which may not be a bad thing. If they need a lawyer, they can hire one. Also most of the skills that you need to run a business you can pick up on the job.
    Harris: The company is of the view that because this person grew up in China (even though this person probably has never done any real business there and has not been back but for a vacation or two in the last ten years) this person must know everything about the legal and business aspects of starting and running a company in China.
    No. The company is of the view that because this person grew up in China he knows enough to know when to hire a lawyer.
    What you seem to be saying is that you want some uber-manager to run things. Things usually don’t work that way because if you *did* have someone that knew everything there was to know about Chinese business operations and law, he’d probably be so expensive to hire, that you couldn’t afford them. So you take what you can get.
    The big question for managers is not “do they know everything?” because the answer is *no*. You aren’t going to find anyone that knows all of the business, financial, legal, social, cultural, and technical aspects of starting a business. The question is what does that person do when they *don’t* know.
    Harris: I am saying that Chinese law for foreign companies is very particularized and the only people I know who truly understand those laws and all of their nuances are the lawyers who deal with them every day.
    But then you run into the problem that the a person that *does* understand the law back and forth and spends all of their time dealing with the law, will not and should not be able to understand the other areas that are involved in running a business.
    If you are starting a Chinese factory that produces nylon curtains for export to Mexico, then the odds are someone that is an expert in Chinese law, is not going to be an expert in nylon curtain production, the Mexican market, or international trade financing.
    Suppose you want a manager for your nylon curtain factory. Yes, ideally you might want an expert in nylon curtains and Chinese law. How many of those do you have? Usually the choice is between someone that knows nylon curtains and zero about law, or someone that knows everything about law and zero about nylon curtains.
    In this situation, it makes more sense to hire the person that knows nothing about Chinese law, since they can hire a Chinese lawyer to deal with any gaps, while if you hire a lawyer to manage things, they don’t know who to hire for their gaps.

  • http://twofish.wordpress.com/ Twofish

    Levy: He knows the language and culture. (So hire him as a translator)
    That just won’t work. You can have senior managers that don’t speak the language, but you can’t operational managers that do not speak the language. If you rely on a translator as a go between then they become the operational manager.
    (Also this is unrelated to ethnicity. A lot of non-ethnic Chinese speak Chinese. A lot of ethnic Chinese don’t.)
    One other factor is that not everyone wants to move to China. If you are a US company, you just can’t point to some random person, and say “hey Bob, we’re starting something in China and we’d like for you to leave Ohio pull your kids out of school, and run a business in a country you’ve never been to and whose language you know nothing about.”
    So if you restrict managers to people that a) can speak Chinese and b) want to be in China, I think you’ll find a disproportionate number of ethnic Chinese.

  • Josh

    That’s life brother. How do you think we Chinese American attorneys feel in Asia? The Asian clients always like to hear from the white attorney to make sure. Count your blessings man, at least you’re getting paid for it!

  • Prometheus

    Two comments.
    Firstly, China poses a serious difficulty for MNC because of the language barrier. Given the hours I have spent on conference calls, the “huaqiao” is enormously helpful to get the nuances across.
    Secondly, however, the phenomenon of the “bush lawyer” (to use the Aussie slang) is not limited to China. I have come across numerous non-lawyer “experts” in a field – ie, marketers who know everything about IP law; bankers who know everything about M&A law; sales people who can negotiate indemnities, etc. Law is law and it is nuanced and peculiar – the sooner people recognise this, the better!
    It’s checks and balances people – you can use your China expat but you gotta supervise them and question their assumptions.

  • tongue in cheek

    I want to feel angry about something here, but I’m not sure what.
    I want to call someone a racist, but I’m not sure how.

  • inspection china

    Fantastic and informative posting here. thanks for sharing this with us.

  • http://wangbo.blogtown.co.nz/ chriswaugh_bj

    Gee, and here I was thinking that the point was that you can’t hire a person based on their ethnicity, not if you want to succeed.

  • Michael Eden

    I’m not on the law side, but have an American MBA. I recently met an ABC (from Taiwan) who took a job as the assistant to a VP in a Chinese company in Shanghai. I think it was a JV, but I’m not sure. He lasted two months. He didn’t even speak Mandarin.
    Even funnier, I knew an American company who hired a Japanese man with a Korean wife to set up their factory in Suzhou. Neither one had China experience, and both were American-born. The company just saw them as “Asian” and thought that everything would be fine.

  • http://newviewit.com Derek Hildenbrand

    Solid advice and a great read…
    Leave it to the professionals, do thorough background research before hiring anyone. Sounds like common sense and it’s amazing some large companies don’t understand this.

  • http://www.kevindherrick.com Kevin Herrick

    Dan, I had the same sort of experience with Canananananadians. I saw situations where someone with any kind of knowledge would have helped the company but it didn’t see the necessity of sending in someone with cultural – and I’d argue it’s necessary to have cross-cultural – knowledge. In fact, I left China because I couldn’t get a decent job. I stopped an ongoing brawl that the Chinese could not admit was going on and the Cananananadians had no clue about (because they believed their Chinese HR). Meanwhile there was a beat-down going on. My thanks was replacement by a Chinese person who spoke English. Same thing, right?
    If you could figure out how to convince large corporations to value prevention and to consider a human problem with the same intensity as a technical problem, I’d be rich. Funny thing is, that HR and even communications get HUGE investment and then a company like Wal Mart doesn’t have someone explain to the locals that the company actually doesn’t consider beatings appropriate in shoplifting cases – that situation was a perfect example of someone simply not communicating well enough. There is so much government resistance in China that one has to really explain messages from the top or they get thrown into the crapper along with the rest of the authoritative directives and conflicting laws Chinese are subjected to on a more or less continuous loudspeaker feed.

  • Chris

    Dan
    Actually the very same issue can apply to ‘foreign’ staff with a deep expertise in Chinese language and a specific area such as myself in PRC sales and marketing. I’m constantly getting HR / labour law / legal / tax / WOFE questions thrown at me by our overseas HQ. While I provide limited advice on these issues I generally attempt to ensure we gain expert advice from either local staff with genuine expertise and experience or have them externally referred to our accountants / law firm for professional advise. If mission critical, then basically we always refer to external specialists.
    It is strange that MNCs expect expertise on these issues from either the ABC VP or even foreign staff who have technical expertise in another subject area. I have constantly advised our HQ that they have whole departments overseas devoted to these areas (HR, finance, legal) and should they believe it necessary in our China operations, we should either build that capacity internally or continue to use external expertise.

  • sam

    In fact, the best candidates for the post of business operation, legal, tax in an Amereican company which intends to invest or do business in Chinese market shall be the Chinese who have grown up in China and gained higher education in America. Such persons have a good knowlege about China and learn a lot about Amercian culture. You know, thounds of Chinese students go abroad for further study after their graduation from college or high school every year, who will be the best candidates for the post in the American company dealing with Chinese business.
    Also, there are a lot of Chinese persons who are good at foreign languages, though such persons haven’t gained education abroad, they have devoted themselves to learning foreign languages and cultures. Besides, they have worked in China for many years and know the rules and habbits of business area in China. Therefore, such persons are also compentent for the post in a foreign company dealing with Chinese business.

  • Richard

    You are spot on with regard to all you’ve said in this post. I would add the issue of laying responsibility for decisions on legal issues on the shoulders of persons not having clear understanding of China law has ended in disaster for the JV’s I’ve had part in. Hiring a competent law firm and following their advice is the only way to go.

  • FranklinC

    This post is funny to me because a Chinese American VP is exactly who a white person would think to put in charge of their China operations.
    Esp. in the US, where race/racism plays a dynamic role in hiring and who gets to be part of the management circle (e.g., hang out with the old white guys)– as you pointed out, these Chinese Americans have a good track record but they are the victims of their own ambition and the racial views of white management. Remember, being the head of China Operations is probably the only way a Chinese American gets invited into the “management circle.” Also because there’s usually already one token black guy and that’s enough minorities for the room.
    The bottom line is generally most white management does not know who SHOULD be in charge of their China operations because they have NO IDEA what it takes to produce results here or and do not have a clear vision for their China operations. This is witnessed by the plethora of mediocre MNCs in China who wasted their potential here on trying to figure out the culture, only to be jerked around by their indecisive HQs.
    My two fen.

  • Lawrence

    I recall the hiring of a Singaporean Managing Director for China operations. The man started every sentence with “In Singapore….” until I exploded and told him we were in China and he had not handled anything in a way that would work over here. I ended up being sacked and he….well got sacked two years later after too many stories of incompetence reached HQ.

  • donzelion

    Dan – I suspect you could as easily have written the same story for most emerging markets. The problem isn’t (necessarily) a Chinese VP, or any other nationality – but rather, Western corporations seem to send folks out under “short-term/shortcut-driven” mandates, a 1-2 year “tour of duty” the “manager” sees as a stepping stone to bigger and better things, and instructions to pluck the “low hanging fruit” (or whatever other buzzwords substitute for thought of the day).
    It takes a tremendous commitment to build anything of enduring value, in any market, but especially in emerging markets. If a company lacks such a commitment, it had best consider less risky alternatives.

  • http://thechinaobserver.com Joel Backaler

    Dan,
    Thanks for linking back to this post. I wish I caught it the first time around. I completely agree with you that foreign companies are a little too willing to give Chinese-born employees P&L responsibility for the Greater China region. Additionally, I think a similar situation exists in the case where Chinese companies within China hire “foreigners” and expect them to excel at an International position. Just because these individuals speak English as their mother language, they could easily lack the necessary business acumen to get the job done.
    Excellent post!
    Joel

  • Robert88

    RACIST – okay, so who are we calling racist, bigoted or misguided? The “Wonder Bread” boss who chose the Chinese-American, or the Chinese-American employee who accepted a cush assignment with a nice package and could then live in China a while and live it up? Of course he can’t go and “out-source” all his responsibilities, head office wouldn’t really feel good about their decision would they? Please the boss, that’s the mantra in a U.S. corporation — heck, any corporation.
    Dan, don’t kill the messenger, go shoot the sheriff.

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  • Jon Anderson

    Dan – well said

    I have been in these situations as a employee and a consultant. Western companies think all Chinese know how to do business effectively here (I live in Shanghai) and that they all are Kung-Fu experts. Some are/some aren’t.

    Companies need to do their due diligence and match the skill set to the task. They want to everything cheaply and expeditiously, and that doesn’t work. Gaming the system also is a bad idea.