Currents:Book Review—The Roads to World-ClassNew Markets Lead West in China GILL IAN RICE

Hexter, Jimmy, and Woetzel, Jonathan. OperationChina: From Strategy to Execution. Harvard Busi-ness School Press, 2007, 208 pp.ISBN: 978-1-4221-1696-8 (hardcover) $29.95.

Gifford, Rob. China Road: A Journey into the Fu-ture of a Rising Power. Random House, 2007,322 pp.ISBN 978-1-4000-6467-0 (hardcover) $26.95.

Deng Xiaoping famously depicted his pragmatic ap-proach to economic reform in China as “crossingthe river by feeling the stones.” Jimmy Hexter andJonathan Woetzel, in Operation China, urge CEOsto visit China in person to learn for themselves ex-actly how different or similar China is from theirexpectations before committing to a purpose. Theytell how Bose Corporation’s top twenty executiveswent to China in 2006 to obtain firsthand impres-sions. Each executive spent a couple of hours dis-cussing opinions about audiovisual equipment withmembers of a Chinese household. They made thesurprising discovery that even in a country witha significantly lower standard of living that theU.S., consumers were willing to purchase high-endhome entertainment products. These household vis-its made a lasting impression on the executive team.The value of first-person experience is a recurringtheme in both Operation China and China Road.Rob Gifford’s book portrays China, its peoples andthe changes that are occurring, through the recordof his trip along Route 312, from Shanghai to theborder with Kazakhstan. Gifford expresses the im-portance of first-person experience this way:

Over years of living in China, I have spoken todozens of Chinese professors and experts, intel-lectuals and urbanites who give the impression ofhaving their fingers on the pulse of the nation andan ability to interpret it for foreigners. Sometimesthey do it very well, but if you really want to knowabout China, real China, there are few better waysto find out than a long conversation with an ordi-nary long-distance truck driver, barreling across theGobi Desert.

Route 312 is emblematic of the changes in Chinathat are important for business executives. Accord-ing to Hexter and Woetzel, getting products to newmarkets as these expand from the eastern first-tiercities to the cities of the west is perhaps the mostperplexing challenge that multinationals face. Thisis not merely an issue of logistics but more broadlyof the distribution function and the maintenanceof brand image at the brand-customer interface.Hexter and Woetzel focus their book on executionrather than strategy. They write: “China is turningthe corner from an emerging market, where localcontent drives most of the strategic and operatingdecisions that managers make, to a maturing one,where top-quality execution is the cornerstone forsuccess.” The phrase “turning the corner” is key.Rob Gifford begins his journey by observing thetrendy, wealthy new Chinese elite in an upscalerestaurant in Shanghai. “Shanghai is Manhattan,”he comments, and “if you visited only Shanghai,you would leave thinking that China is undoubtedlybound for greatness.” Traveling west along Route312, he soon meets with rural, much poorer, Chinesefamilies and discovers many other faces of China.

c© 2008 Wiley Per iodicals , Inc .Publ ished onl ine in Wi ley InterScience (www.interscience.wi ley .com)

Global Business and Organizat ional Excel lence • DOI : 10.1002/ joe .20206 • March/Apr i l 2008 79

Even in Beijing, the distribution of automobilesshows how far around the corner in some industrysectors China still has to go. Although there are over2500 registered automotive dealers in Beijing, onlyone hundred of these have annual sales of more thantwo hundred cars. The dealers offer limited after-sales service and little financing. Brand management,marketing and customer relationship management,explain Hexter and Woetzel, do not yet exist. Nokiais one company that has boosted its performance byrationalizing the layers of its distribution system andbroadening its retail reach through over five thou-sand salespeople that sell directly to retailers. In theold era of doing business in China, foreign compa-nies needed myriad government permissions and hadto pick the right joint venture partner and sell theirexisting brands at premium prices in the right cities.Now the rules are changing; the marketplace is be-coming more complex and intensely competitive,as local Chinese firms with better market knowl-edge and lower costs gain share. The business land-scape is beginning to look more familiar. Althoughthe environment is different because of China’sunique demographics, culture and history, just asother foreign markets are different, there are increas-ing opportunities to leverage experience and opera-tional practices from various other markets. A dom-inant premise of Operation China is that achievingbest-in-class execution means adapting proven suc-cessful methods to the Chinese environment and notdesigning unique, China-only processes. China hasbeen closely integrated into the world economy forsome time—now multinational companies need toensure that it is closely integrated in terms of man-agement practices. Business leaders used to empha-size the necessity of having a presence in each part ofthe Triad (the U.S., Europe and Japan) in order to betruly global. Hexter and Woetzel argue that globalleadership will soon depend on leading in China.Global companies that cannot succeed in China willcease to be global companies at all.

A massive middle class is starting to emerge inChina, and not just in the coastal cities, but in the

cities of the interior, very gradually spreading west.This is occurring in tandem with a growing spiritof entrepreneurialism. Xinjiang, the western-mostprovince of China was the fastest-growing of anyof China’s provinces and regions in terms of for-eign trade. A Chinese manager in the Xinjiang cityof Urumqi explains to Gifford how Xinjiang usedto be known for “black and white” (oil and cot-ton), then black, white and red (Xinjiang producesover 30 percent of the world’s tomato ketchup) butnow, he proudly announces, Cisco and IBM are inUrumqi.

Although there is a consumer boom, the majority ofpeople still have no access to it. China is not a na-tional market like France. There are regional differ-ences in products, marketing, and distribution costs,for example. Hexter and Woetzel report researchthat demonstrates consumers in third-tier cities aremore pro-education, more brand loyal, and borrowmore (from family and friends) than those in first-tiercities. Carrefour China’s president notes middle andwestern China are much less mature markets anda product such as a flat-screen TV would be moreprevalent in a store in Shanghai than in a store inmiddle China. Trends noticed by McKinsey’s ChinaConsumer Center are that Chinese consumers in2006 were increasingly interested in Chinese brands,but 70 percent thought that several beverages mar-keted by foreign companies were domestic brands,and over 80 percent thought a foreign pharmaceu-tical product was a Chinese brand. They easily dis-tinguished between foreign and domestic consumerelectronics brands, however.

The implication is that multinationals should tryto appear as local as possible in the smaller cities.Novartis markets a pain medication, Voltarin, withno English name or words on the packaging. Adver-tisements also show only the Chinese name of thecompany which translates as “Chinese Promise.”The product is endorsed by Chinese celebrities,such as the China National Gymnastics Team.This approach is no different from what many

80 March/Apr i l 2008 Global Business and Organizat ional Excel lenceDOI : 10.1002/ joe

multinationals have done for many years around theworld. British consumers think of Heinz as a localbrand; millions of consumers in numerous countriesthink of Nivea as a local brand. In their discussionof mergers and acquisitions in China, Hexter andWoetzel refer to Groupe Danone, which is rollingout a targeted strategy for growth in wider circlesthrough China by means of local brands—and hasso far acquired more than three dozen Chinese com-panies to get there. Again, this is typical of Danone’smode of global expansion in other markets such asNorth and South America, where it has also focusedon buying local brands.

Learning about market differences in China is diffi-cult and research often has to be more art than sci-ence. Much is done in-house. Hexter and Woetzelportray P&G as a successful company because it hastaken its already proven P&G research processes,systems, and practices and is leveraging them byadapting them as needed for the Chinese market.In China, P&G relies more on partnerships withuniversities. It also has to live with more uncer-tainty and has to guard intellectual property moreclosely. P&G’s Consumer and Market Knowledgegroup in China has nearly one hundred specialistssupporting brand teams and sales teams. Each oneof P&G’s brand teams in China has at least one mar-ket research manager. Market research practices areclosely allied to product development and R&D.Danfoss, a Danish company, has established R&Dcenters in China for refrigeration, air-conditioning,and heating products. Although they are develop-ing products for Chinese markets, Danfoss’s CEObelieves the products can also be low-cost plat-forms for new products that can then be tailoredfor more developed markets—resulting in productsthat cost less to develop (than in Europe) for Euro-pean customers, also. Hexter and Woetzel provideadvice on the protection of intellectual property andpresent a pyramid of protections, with what are the“must have” protections at the bottom and the “niceto have” protections at the top. Additionally, theysuggest that building a strong presence in China

is a deterrent to intellectual property (IP) theft. Acompany with a significant presence is a higher-risktarget for infringers than are companies with mini-mal presence.

China can be confusing: it is a country that seemsvery capitalist, but is run by a communist party.Gifford explains that being a member of the Com-munist Party has nothing to do with ideology.The best students join the Communist Party. En-trepreneurs are welcome to join the Party. Giffordmeets with two young women in their twenties, bothtypical of the smart, younger, connected generation,one of whom reports that, at a recent meeting ofthe Communist Party members in the large Ameri-can multinational where she works, two books werehanded out. One was published by the CommunistParty and contained all the latest Party directives.The other was a company book on how to be abetter salesperson.

Gifford presents an evocative metaphor to describethe Chinese people’s relationship with the Party.After the Tiananmen Square incident of 1989, theCommunist Party began to retreat from people’s ev-eryday lives and made an unwritten, unspoken dealwith the population: stay out of politics and you cando anything you want. Gifford writes:

The tiny birdcage in which Chinese people had pre-viously lived became an aviary. You cannot yet flyup into the clear blue sky, and they can still catchyou if they want to, but there is plenty of room tofly around.

After over forty years of being forced to participatein politics, most Chinese are more than happy todisengage from it and get on with the business ofmaking money. Party slogans are omnipresent onbillboards however. Here is a sample from Gifford’sobservations: “Put the people first.” “One childless will save you 3000–5000 yuan” ($400–$600).”“Speed up road construction. Speed up the develop-ment of the west.” “As you work towards moderate

Global Business and Organizat ional Excel lence March/Apr i l 2008 81DOI : 10.1002/ joe

prosperity, education is the most important thing.Knowledge is strength.” And one very commonsign is: “Revive the nation through science andeducation.”

It is true that many Chinese-born scientists have re-turned from abroad to continue their research, notjust out of patriotism but because Chinese researchfacilities have become so cutting-edge. Yet, Giffordis less optimistic about China’s future than areHexter and Woetzel. His book looks more deeplyat history, culture, and the political reality in China,as well as touching on economic growth and thebusiness scene. Gifford raises important questionsabout “creativity and innovation and the freedom ofthought that feeds them, which China at present willnot allow.” He emphasizes the numerous contradic-tions in Chinese society. For example, the Party doesnot want people using the Internet to access sensitiveinformation, but it needs technology to become themodern country it wants to be. The Party needs topromote knowledge in order to compete, but knowl-edge is dangerous. China is rising economically, butthere are still 100 million people who live on lessthan a dollar per day.

The contradictions are inherent in manufacturingtoo. The low cost of labor no longer confers an ad-vantage, so multinationals need to regain competi-tive advantage by boosting performance. This meansthat they must implement in China the lean, quality,and Six Sigma techniques they use in other coun-tries. The question is how to apply them in Chinawhere cultural norms are often barriers to eliminat-ing wasteful practices. Hexter and Woetzel clarify:for example, many Chinese managers celebrate suc-cess at the first sign of any minor improvement andare not accustomed to rigorous, long-term effortsto implement lean manufacturing properly. Work-ers are not used to speaking up and engaging inproblem-solving behavior; they should not criticizetheir superiors. Hexter and Woetzel explain an un-derlying dilemma: “in a society where leaders have

exercised political power through the mass mobiliza-tion of the Cultural Revolution and the Great LeapForward, getting large numbers of people to lookas though they are actively following a consistentpath often seems more important than genuine, mea-surable improvement.” Hexter and Woetzel provideplenty of detail regarding changes in China relevantto executives. China is now implementing a regula-tory code not dissimilar from that in other marketeconomies. Its constitution protects private prop-erty. Over 75 percent of industrial output is pro-duced by the non-state sector. Constraints on for-eign business are relaxed and wholly-owned foreignenterprises are permitted in most industries. For-eign firms are permitted to sell directly to customersand multi-level distribution systems are no longermandated. Decisions by officials are more transpar-ent and there are efforts to root out corruption. In2006 the government deposed the Party Secretary ofShanghai on charges of financial mismanagement.A review of Transparency International’s Corrup-tion Perceptions Index (http://www.transparency.org/policy research/surveys indices/cpi), however,shows no changes in the perceptions of China’s de-gree of corruption as seen by business people andcountry analysts over the time period 2001–2007.The specific issues may vary from place to place, buteverywhere, observes Gifford, the underlying prob-lem is the same: “corrupt local officials creatinga cauldron of hardship and anger in the country-side.” He notes that many Chinese retain an age-oldConfucian belief that central government leaders aregood, and it is just the local officials who are corrupt.

Executives in multinational companies must workclosely with Chinese partners and staff. If they donot share a single mindset, mistrust and miscom-munication develop, which slows down executionand blinds all concerned to market realities. Hexterand Woetzel discuss how leading companies workto bridge the cultural, educational and motivationaldifferences between the two sets of managers. Onefeature of Chinese culture is respect for hierarchy,

82 March/Apr i l 2008 Global Business and Organizat ional Excel lenceDOI : 10.1002/ joe

a trait so strong that, if foreign managers do notprovide structures that allow for it, employees willcreate hierarchies of their own. At GE China, ev-ery new hire is assigned a “buddy” with one ortwo years’ more experience who helps the new re-cruit learn the basics. Later, the employee can se-lect a mentor who will provide advice and coaching.GE China also matches local managers identified asemerging future leaders with very senior executives,either domestically or overseas; this mentorship isusually used as part of a succession plan. Multina-tional corporations can attract the best talent byemphasizing their companies’ advantages: experi-ence, professionalism, and internationalism. Ambi-tious young Chinese “stars” usually perceive themas better places to work. HSBC, each year, putscarefully selected global managers, including Chi-nese ones, through a global rotation program thattrains them in world standards and practices.

Although Gifford’s style is somewhat reminis-cent of that of Peter Hessler’s (River Town andOracle Bones; both highly recommended detailedtreatments of contemporary China), Hessler pro-vides more in-depth treatment of the feelings overseveral years of ordinary Chinese people who leavetheir rural backgrounds to seek their fortunes inthe factories of the east. Hessler’s approach ismore ethnographic, whereas Gifford provides briefglimpses and anecdotes with commentary as he trav-els Route 312 by taxi, bus, truck, and sleeper bus.Like Hessler, Gifford often refers to Chinese historyto put today’s developments and any likely futuretrajectory in context. In the U.S., there are nine citieswith more than one million inhabitants. In Chinathere are forty-nine. Most foreign executives havenever even heard of their names. In Hefei, in AnhuiProvince, Gifford meets with officials who are seek-ing development through the attraction of businessinvestments. Over 1600 miles west of Shanghai, ina smaller town in the Gobi desert, Gifford discoversstores full of consumer goods (though not as ex-pensive and modern as those in stores in the east),

cars on the streets, new apartment blocks, posterspromoting a new movie starring Brad Pitt in “Mr.& Mrs. Smith,” and broadband in every room ofthe hotel in which he stays. By chance he meets apair of Amway representatives and attends a moti-vational meeting of earnest Amway salespeople ledby their mentor, Teacher Hu. The words of one ofthe salespeople, which express the ambitious dreamsof what is happening to many Chinese, made a last-ing impression on Gifford: “Right now we are justsurviving. We want to live! You know? We want toreally live!”

Hexter and Woetzel have each been in China fortwenty years, one in Shanghai and the other inBeijing. They both speak Chinese and are partnersin McKinsey and Co.’s Greater China office. Op-eration China is replete with illustrative examplesbut in many cases a reader might prefer to havemore detail; some examples are frustratingly vague,presumably because of corporate confidentialityreasons. The authors explain that their work isbased on research from proprietary databases suchas consumer studies, company case studies, and astudy of performance management practices at 300global companies. Typical of most books writtenby consultants, the style is hard-hitting, optimistic,and full of “soundbites” and useful advice for busyexecutives. It is an excellent start for executivescontemplating operational changes or trying toimprove performance in China. The book can helpmanagers structure a plan for execution becausethe authors organize their work functionally withsections on marketing, product development, man-ufacturing, sourcing, distribution, human resourcemanagement and mergers and acquisitions.

Gifford is also a fluent Chinese speaker who haslived twenty years in China. China Road is a per-fect complement to Operation China. Gifford helpsmanagers understand more deeply the complexi-ties and contradictions of what he calls “this crazytwenty-first-century Chinese revolution.” Through

Global Business and Organizat ional Excel lence March/Apr i l 2008 83DOI : 10.1002/ joe

his eyes, readers can travel west 2998 miles acrossChina and meet “Old Hundred Names” (the col-loquialism for the common people), and accom-pany Chinese and foreign tourists to the TerracottaArmy, the Caves of a Thousand Buddhas, LabrangMonastery, and the Lake of Heaven. Executives canlearn of the impact of Route 312 on the distributionand logistics of both foreign and Chinese companiesas they expand westward. There is another commu-nication channel traveling west, however: the infor-mation superhighway. Gifford’s cell phone vibrates,as all Chinese cell phones do on entering a newprovince or region. A typical message appears, hereports: “Welcome to Xinjiang,” followed by an-other, “Looking for a gift? Khotan jade is perfectfor any occasion. Call this number now.”

ReferencesHessler, P. (2001). River town: Two years on the Yangtze.New York: HarperCollins.

Hessler, P. (2006). Oracle bones: A journey through time inChina. New York: HarperCollins.

Gillian Rice teaches Marketing and Marketing Research atArizona State University. She was a Fulbright Senior Scholarat the University of Bahrain in 1996–1997 and is ProfessorEmeritus at Thunderbird School of Global Management. Sheholds a PhD from the University of Bradford. Dr. Rice’s re-search interests include environmentally related consumer be-havior, the fair trade movement, and models of employee cre-ativity and organizational innovation. She can be contactedat Gillian.Rice@asu.edu.

84 March/Apr i l 2008 Global Business and Organizat ional Excel lenceDOI : 10.1002/ joe