Mao and Markets -- Business the Chinese Way

Our goal was to convince our American client that the price being quoted was as low as could be found anywhere in the world. The problem was that our Chinese manufacturer could not deliver at the price it originally quoted. We stood somewhere in the middle, trying to facilitate clear communication between firms with different languages and different cultures. I stepped into this dilemma when I was asked to proofread and reformat a PowerPoint presentation for the highly anticipated arrival of the American firm’s executives in a few days. My objective was to learn as much as possible and to help ensure that a contract would be signed.

As a brand new intern working for a business consulting firm in Shanghai, China, I was suddenly immersed in a world most Americans have only read about in Fortune and Business Week. I had arrived in Shanghai five weeks earlier to study Globalization and Developing Economies in UCLA’s inaugural Global Institute. My fascination with China had begun when I learned of its phenomenal economic growth in an International Relations course at UCLA. Nothing could have prepared me for the experience I was to have when I was accepted into the Shanghai summer program, received a scholarship covering my tuition, and hopped on a China Eastern airliner in June 2004, a few days after my last spring term exam.

After being charged triple the normal fare for a terrifying ride from the airport in an illegal cab, I stood in awe. There he was, towering over me. His outstretched hand was the wave of dominant dictatorship in the name of the people. This giant statue of Mao, greeting all entrants to Shanghai’s Tongji University , left me wondering. Did Mao still have the influence in death that he had in life over the world’s most populous country? The question of Mao’s legacy and how reform had transformed the popular culture was a question that began formulating in my mind the moment I saw that magnificent statue. It was only after my classes, internship, and explorations that I began to truly understand his current influence.

Now my classroom instruction was over and I was in my first week of an internship that had also been arranged as a part of the program. I had spent the previous five weeks going to class and exploring the town. I had visited a hospital, a steel factory, a plastic bag factory, a farm, an old river town, and the cities of Beijing and Hangzhou. From the perspective of a student and consumer, I spent time observing how the invasion of Western business had influenced popular culture. Now it was time to continue my learning from the inside. American business was moving to China, and I was about to become a part of it. As an intern at a business consulting firm, I was given a chance to do research and problem-solving to help U.S. and Chinese firms work together. My first project was to help solve the dilemma of a price quoted too low.

The price originally quoted was too low as the result of the bidding system. Competition for the right to source the product had forced our company to quote an unreasonably low price. This is where I first encountered the term “The China Price” and got a chance to see its influence in practice. “The China Price” has become the world standard for many products and those unable to reach it are vulnerable to global undercutting. The American firm wanted to start the manufacturing of a particular product in China and was trying to find the lowest price possible. That’s where our company came in, a link between two worlds and one supply chain.

“So what do we tell them?” I asked. The response was logical. We were to explain how the cost was almost completely fixed, and half of the remaining variable costs were outside of our Chinese supplier’s control. The new higher cost would thus seem reasonable. Unfortunately, I was told, the Americans may not see it that way.

“Well, why don’t you just go with someone else?” I questioned further. The response to this gave me great insight to the differences between business in America and in China. An important ranking cadre of the Chinese Communist Party had a vested interest in our Chinese supplier. Doing business with this supplier was not a simple manufacturing transaction; it was building a relationship. If the deal did not go through, it could cause my company all sorts of future hardships. Although the revised price being offered for this deal would not permit much profit, future prices were expected to be much better, as the relationship solidified. This is business with Chinese characteristics, and it cannot be learned in a classroom

A compromise was thus devised. In order to cut costs, the plastic resins being used could be changed from American to Chinese. The savings would be substantial, not only because of the cheaper price of Chinese resins but also because our firm was already using them for another project and could just add to that order. Thus the option of resins was offered as a possible cost-cutting solution, with it made explicit that Chinese resins would result in a lower quality product, perhaps not meeting certain regulations. We put this option into the PowerPoint slides just in case the American executives stuck to their price. In the end, that is exactly what happened.

So the production of yet another product with an American nameplate came to be produced in China. This was not a simple textile or plastic bag, but a sophisticated postage stamping machine. A backbone of American capitalism, now one of the most used machines in American business offices was going to be made in a country that is still not considered a market economy. Once united in its opposition to capitalism and its hatred of so-called U.S. imperialism, China would now be producing machines to stamp the “Imperialist Paper Tiger’s” envelopes.

Many people oppose American companies outsourcing to China and the loss of American jobs that often follows Unfortunately, markets can no longer be viewed in domestic terms only. The largest corporations in the U.S. are all multinational and must compete on a global scale. If U.S. firms don’t seek their global profit-maximizing conditions, firms from other countries will, and the U.S. will be left a dinosaur of protectionism. It was with this in mind that I tried to learn as much about the process as possible, reserving judgment.

It did not take long for my earlier reading in Chinese politics to inform what I did during my internship experience. I was participating in the fast paced world of big business in Shanghai, but I was also using the perspectives I had gained in my studies to try to understand the big picture. The whole experience still left me with one particularly salient question: WWMT. What Would Mao Think? I wondered if people noticed the contradiction between their current economic system and their revered leader’s undying beliefs.

I began talking to people. I spoke with other students, co-workers, bartenders, taxi drivers, waitresses, and even other foreigners. Anyone who would speak English to me was faced with many questions. What did they think of Mao? Would Mao approve of what China was today? All but one of the many responses was overwhelmingly positive. “Mao was the founder of the PRC and he loved his people very much,” was a common response. “Of course Mao would be happy now. China is prosperous.” This confused me.

It seemed to me that everything I saw was a movement away from Mao. Giant skyscrapers conceal the sky, physically pushing the emerging upper middle class away from the ground level, far from Mao’s final resting place. Not even from the top can one see much of a lingering communist ideology. Down below bikes, scooters, buses, and cars propel people too fast for them to slow down or reflect on what they are passing. A pedestrian in Shanghai must be responsible for his or her own survival. Egalitarianism seems to rest with the dust lining the sidewalk, trampled by foot traffic and thoughts of personal gain.

The communist revolution of 1949 led to the destruction of many societal traditions. Through the summer courses I took with UCLA Professor Yunxiang Yan, I learned how the cultural legacy of the past was mixing with a new Western cultural invasion. Now, as the communist shanties are being demolished, so is the communist ideology a vacant lot, quickly being filled by twenty-four hour construction. What could possibly fill the void left by an ideology that had penetrated every aspect of society for three full decades? Like the hopeful Chinese peasants and workers of the 1950’s, I looked to Mao for an answer. And, near the end of my experience, it was in him that I found what I was looking for.

Beyond the occasional statue at a University or kind words from a patriotic taxi driver, Mao’s influence seemed at first to have disappeared. It did not take me long to find him again in the most powerful and omnipresent addition to post-reform China. There he was, smiling up at each and every person from renminbi (Chinese currency). Instead of statues, now skyscrapers are being erected in honor of Mao’s new power of the yuan. Though his influence might have changed in nature, Mao’s legacy is preserved by being stamped on the money fueling the economy that he worked so hard to prevent. Current leaders are using Mao’s image as the founder of the PRC to legitimize themselves and their new form of authoritarian capitalism. The irony is that with the incredible growth and potential of the Chinese market, Mao in currency form, may finally reach the level of global influence that he desired. I wonder what he would think about that.

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Nicholas Steele will graduate in June with a degree in Economics and Political Science. He is currently doing research on the labor market for college graduates in China. After graduating, Mr. Steele hopes to work in China or with a China-oriented firm. You can reach him at nas@ucla.edu.

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