Doing Business in China

Earning a Masters in Business Administration (MBA) was a dream I had since I was graduated from the University of North Dakota in 2003. In 2018, I was living in Johns Creek, Georgia and was working full-time leading the marketing efforts in the US & Canada for Dolphin robotic pool cleaners. I realized that now was the time to pursue an MBA.

After evaluating the MBA Programs for the Georgia Institute of Technology, Emory University, and Cornell University (All top 20 ranked MBA Programs) - I chose Georgia Tech’s 18 month program.

Georgia Tech’s MBA Program allowed me to continue to work full-time, and take classes on Friday evenings and all-day Saturdays for 18 months. Overall, it was the best value for me. The in class learning environment was 5-stars, the courses were ultra-modern, and there were several additional nuggets of value, such as the 2-week China residency trip (Which I’m writing this near 3k word article on. I can understand if you scroll LOL).

My MBA education was from August 2018 through December 2019, and this 2-week China residency was in April of 2019. During this time, China was a bit different place. Trade relations were strong, everything was being made in China, there hadn’t been a pandemic, the world wasn’t on the edge of war, and I had experienced seeing people in China living their version of “the Chinese dream”. Getting a good Job, getting married, buying a new home, money to invest were happening for regular people all over China. It was a different economic time just 6 years ago.

This article focuses on my 2-weeks in China as part of the Georgia Tech MBA Program in April 2019, and as a group of almost 100 students - we learned as much as you could about “doing business in China” during those 2 weeks.

Arriving in China

Everything about this 2-week residency trip was 5-stars. And, even in China, the burger, fries, and a coke I ordered to my room on day 1 looked amazing. I would quickly learn that the focus on delivering exceptional customer service in the hospitality industry in China is top notch, as I imagine is also probably true in nearby places like South Korea, Japan, and the Philippines.

After arriving, here was the inside of my 5-star hotel room for the 7-day stay in Beijing, China. As students, we had to cover the airfare to China, which for me was about $2,200 flying with Delta Comfort Plus. However, the MBA Program covered the hotel rooms, travel, and meals each day.

The morning of my first day of the program schedule, I took a picture of the sunrise from my hotel window. During this time the economy was humming along on all cylinders, and each day their always had a grayness to the sky from all of the pollution. This is even after having energy restrictions in place, not allowing residents to turn on air conditioning until May.

Week 1 Kickoff in Beijing

Week 1 in Beijing kicked off with 3 days at the Beijing University of Posts & Telecommunications. The professors gave us an introduction to all the core elements of doing business in China. Things included immersive content and discussions about things like:

• Chinese demographics and culture changes the past 100+ years.

• We learned about the history and structure of the Chinese Communist Party (CCP).

• The great migration from rural farming areas to coastal mega cities as the country shifted their focus from mass agriculture production to the industrial age.

• In the 19th century, China was the largest economy in the world. This was primarily because of the agricultural age. China had a lot of people, and a lot of farmland producing crops. The industrial age came much later for China.

• During the 50s to 80s, 80% of the population lived in rural farming communities. After decades of migration in the pursuit of more opportunity - today 80% live in coastal mega cities working in factories and the technology sector.

• Workers regularly joke about the phrase “996”. This means they work from 9 am to 9 pm each day for 6 days per week. That’s a 72 hour workweek btw.

• China was one of the first countries to primarily use digital payments. Most commerce is done using WeChat or Alipay with an app on their phones. Cash isn’t used as often, and using credit cards like Mastercard and Visa are not popular.

• We learned about several of the infrastructure mega project initiatives.

• The countries focus on copying competitor technology and mass producing, and the plan to shift to “home grown” technology innovation.

• The 1,000 talents program which focuses on bringing so many technology researchers, industry experts, and innovative businesses to China.

• Key business cases from companies like Best Buy, Home Depot, and Google that invested in a China expansion then crashed & burned, and why they failed.

Most people probably don’t understand this, but China had a lot of western influence in its leadership in the 90s through 2010s - before President Xi. Much of this influence led to their momentous economic growth and prosperity. Even though some of the economic deals were largely one-sided in China’s favor.

The Yuan is the name of their currency and is pegged to the US dollar. Basically, their whole system is pegged to the US. One US dollar equals between 6 and 8 Yuan depending on the year. Worker compensation is pegged to the US. For example, if an Engineer in the US makes $150,000 USD… in China, an Engineer will make 150,000 Yuan. Its the same amount, but the value is equal to about $21,000 USD.

I remember eating several times at a cafe in the Shanghai Hotel during our stay. The girl behind the counter was there every time, and very sweet. One day I tipped her 50 Yuan. I recall her saying “are you sure?”. Even though it was about $7 USD for me, economically in China - she perceived it as we would a $50 dollar bill.

A key concept to understand is that a $10M USD budget in the US can be achieved with a roughly $1M USD budget in China. Mainly because the cost of labor is much less, raw materials and manufacturing are centralized in China, and the cost of living is much lower for workers.

The whole China economic system has been setup in this way with a direct relation to the United States. As much as we’re often taught to believe the Chinese don’t like us (which some of them don’t), they have taken our lead in many ways.

Finishing Classwork at the University

This next picture was on day 3 at the University completing a team project with local students (Such great people). Later that day, we received our Certificate in Doing Business in China from the University.

Exploring Beijing Shops

During one of the evenings in Beijing I felt adventurous and took a cab to a nearby shopping area, and walked the streets exploring what kinds of local businesses were in the area. Much of it was food, restaurants, and street vendors.

I came across this regional chain “Holiland” that was basically a very fancy bakery with sweets. I found the name to be funny, and an example of typical Asian humor.

I also stopped at a shop that had all kinds of snacks and grabbed this bag of caramel corn. I remember I gave the cashier the 10 Yuan I got from my Korean father-in-law before I left. He happened to have it leftover from a trip he made to China long ago. The two employees were having fun looking at the 10 Yuan bill that I guess was very old compared to new currency.

Overall, I will say I noticed people were a bit less friendly to Americans once I was away from the hotel and the University. There is a strong spirit of Chinese nationalism in Beijing compared to much more western influence in Shanghai (At the time). People in Shanghai were much more likely to speak English, were a bit more trendy, and friendly overall.

My First Bullet Train

My first experience on a high-speed train was incredible. One thing I noticed when I arrived to China is that the airport infrastructure and planes are much older than the United States. The airports are a bit rundown, and not that busy. This is mainly due to the enormous high-speed rail infrastructure that China has built across their entire country in such a very short period of time.

In the US, we’ve put most of our resources into building an ultra-modern, highly-advanced, and very safe airport infrastructure. Unfortunately, in the US, rail is very aged and not even modern in most places throughout the country.

In China, this infrastructure focus is completely flipped. China has high-speed rail across their entire country, and the airports are very outdated.

It was about $40 for a luxury seat on this high-speed train that traveled at almost 200 mph taking us from Beijing to Shanghai in about 3.5 hours. Our section of the train had attendants, and snacks galore, which you could buy. I bought about half a dozen just to explore the unique Asian treats and beverages.

As I was looking out the window the scenic countryside seemed to move by slowly, even though we were traveling very fast. On the way, when we would pass cities (some of them, I imagine were so-called “billion dollar ghost cities”) - it was common to see pictures like this with dozens of high-rise construction cranes. As we passed one city, I remember counting 50+ high-rising construction cranes. All cookie-cutter high-rise apartment designs… block after block.

1-Week in Shanghai

My experience in Shanghai was the highlight of the trip for me. One of the evenings, I snuck away and had dinner at the top of the Ritz Hotel in downtown Shanghai. There was this couple getting their wedding pictures taken overlooking the downtown skyline, river, and high-rise buildings that seemed to extend as far as the eye could see in every direction.

In the US, we don’t really understand the size of an Asian “mega city”. I remember a local telling me that if you count all of the suburbs that feed into Shanghai, there are more than 220 million people living in this area.

The architecture has so much character, especially in Shanghai. As a sci-fi nerd, much of the designs seemed very futuristic and unique. I know this is true for other mega cities like Hong Kong and Shenzhen. As we would visit tech incubators and regional companies, it seemed like regardless of how much people earned in Shanghai, many of them dressed very stylish.

A Conference Just for Us

In Shanghai, as a group of about 100 students, we had about 3 days of learning from entrepreneurs and speakers at the hotel (basically our own mini-conference). We learned a more in-depth understanding of how the Chinese economy worked.

In the US, some people have an understanding that the Bank of China owns large portions of Chinese companies, which means the CCP has a larger amount of influence over those said businesses and leadership teams. One of these mega companies was Tencent.

However, it’s more complex than that. The Bank of China percentage of ownership that is required for a business or startup depends largely on the type of industry. Tech companies for instance are largely Chinese owned.

While some industries may require The Bank of China owns 50%+ of the business (Which can come with a lot more control), there were industries like car parts in the early 2000s and 2010s that required close to zero ownership by The Bank of China. This was largely due to motivate companies to fill technology gaps that were in China’s economy during that time.

Artwork in a Creative Vacuum

I’ve found that countries with rigid structures of control tend to generate cultures that squeeze out creativity. On one of our quick bus stops to grab lunch at a fancy hotel, I took this picture of a beautiful painted glass wall in the lobby. Even though there is a clear “creativity gap” in China compared to the US - you could find beautiful architecture and artwork like this throughout Shanghai.

Mini-Conference Day 2

One of the presenters was a local entrepreneur who had made a retail business focused on taking old propaganda pieces from the 50s through 90s and turning it into creative t-shirts and art pieces. It was a creative take on something that lacked creativity.

As a marketer, back in the day in China - there wasn’t advertising like you would find in the US. It was all communist propaganda banners - with little focus on making advertisements “consumer focused”. From a consumer marketing perspective it was like developing content from an executive based top-down approach, rather than consumer based bottom-up approach.

This entrepreneur had old rail tickets, shirts with old propaganda slogans, and meal passes on cards. It was interesting, took advantage of their history, added some humor, and still wasn’t offensive to the CCP.

Just to give you a quick tidbit on how central planning looks in real life… One way that the CCP used to manage the migration of people was to give them a meal pass (Food was rationed to the population back then). That was how they got food or ate at restaurants (usually more like a food court).

For instance, if they were to move to a different city on their own whim, they would end up risking starvation because there meal pass was only valid for the city they left. This way, the government could control the amount of people that would leave town for more prosperity.

Even today, a Chinese person can’t just up and move from a rural town to rent an apartment in Shanghai. Their ID card has a certain level of approved access. In a way, this is similar to managing a caste system. However, because of the advanced rail network that was constructed in the 2000s and 2010s, workers are able to move to suburbs and commute into Shanghai to take advantage of their booming economy.

A Special School

One of the days while in Shanghai, we took a trip to a school outside the city. This school was uniquely different than schools found in Shanghai. This was a school and home for the children of parents that moved from rural areas to Shanghai in their pursuit of the Chinese dream. Because of long hours, they didn’t have time to school and take care of their kids themselves, and chose to make this sacrifice.

Parts of this facility felt like an orphanage. The children were happy to see us, and we had a few educational exercises with them. It was a very old facility, but they appeared to be well cared for. Parents looking for solutions for raising their children, while they work and provide is a common theme in Asia.

Many of us asked how we can donate to this facility and program for these children. Unfortunately, In China, nonprofits are not allowed to operate. China tightly controls any potential outside influences on that could affect their cultural objectives. Overall, I really enjoyed this part of the experience. We saw so many different perspectives from the Chinese people.

Formula 1

One of the last days of this 2-week residency was at the Formula 1 race track in Shanghai where we mostly learned about the evolving market for professional sports in China. From my understanding, sports like basketball, soccer, formula 1 racing, and even baseball are growing rapidly in popularity.

Today, the business and economic environment in China is much different just 6 years later. Many economic factors are causing some businesses to re-shore their manufacturing back to the United States, as well as consider different countries for input materials and components.

The prospects of unstable tariffs, port delays, a much higher cost of trans ocean shipment, competition from Chinese knock-offs, and ultimately the risk of war have fractured todays business model for trade with China.

China is a country that has long since broken the mold of a developing nation. With a mindset shift in some leaders perspectives, maybe we can come to a modern trade relationship that is beneficial for both countries goals.

I hope you enjoyed learning about my experience as part of the 2-week residency trip to China in 2019 before I graduated with an MBA from The Georgia Institute of Technology. I apologize for the near 3,000 word newsletter post. If you have questions or are considering an MBA program, please feel free to reach out to me about advise.