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BRAIN GAIN
AND DRAIN
MORE AND MORE
CHINESE ARE ENROLLING
IN COLLEGE IN CHINA...
(Tian Suning), a U.S.-educated entrepreneur, founded the telecom start-up AsiaInfo
(now AsiaInfo-Linkage), which within three
years grew into a thriving company of 320
people with revenue of $45 million.
In 1996, frustrated with the slow pace of
technological change in China’s telecommunications industry, then–vice premier
Zhu Rongji convinced Tian that it was his
duty to leave AsiaInfo in order to lead a
new company, China Netcom, as it set out
to build a fiber-optic network linking some
300 cities. When one of us (McFarlan) visited the company, in 2001, it was an innovative firm with an open, creative culture,
despite the fact that it was jointly owned by
four government agencies.
In 2002, when the telecommunications
giant China Telecom was broken apart by
the government, its 10 northern provincial
markets were integrated into China Netcom. Overnight, Tian became responsible
for an organization of 230,000.
The culture clash between the two organizations was extraordinary. Tian was seen
by many China Telecom employees as an
American outsider trying to reform a stateowned enterprise in unacceptable ways.
Six months after the merger, McFarlan
presented our case study on China Netcom
to 70 senior Chinese executives, including
20 from the telecom industry. Rather than
draw lessons from the case about the relationship between organizational change
and business success, the group attacked
Tian for his “un-Chinese” ways of managing—and then charged McFarlan with
incompetence for presenting Silicon Valley culture in China in such a positive light.
Tian soon stepped down from his CEO role
and later from the China Netcom board.
To outsiders, China Netcom eventually
looked like a modern telecom firm, with
CHINA
23.9M
UNITED
STATES
19.9M
…BUT MORE ARE ALSO
CHOOSING TO STUDY
IN THE UNITED STATES.
2001
14.5M
63,211
194,029
2011
8.3M
3.4M
860,000
1978
1998
2012
SOURCES CHINA ENROLLMENT: PHILIP G. ALTBACH, QI WANG, YINMEI WAN, CHINA’S MINISTRY OF EDUCATION.
U.S. ENROLLMENT: NATIONAL CENTER FOR EDUCATION STATISTICS, U.S. CENSUS BUREAU.
DATA FOR CHINESE STUDENTS IN THE U.S. ARE FROM THE INSTITUTE OF INTERNATIONAL EDUCATION.
the governance structures needed to be
listed on international stock exchanges.
But it remained at heart a state-owned enterprise. When we teach our current case
on China Netcom, we ask MBA students to
scour the company’s board for the real boss.
Where, we ask, is the party secretary? The
Communist Party requires a representative
to be present in every company with more
than 50 employees. Every firm with more
than 100 employees must have a party cell,
whose leader reports directly to the party
in the municipality or province. These requirements compromise the proprietary
nature of a firm’s strategic direction, operations, and competitive advantage, thus
constraining normal competitive behavior,
not to mention the incentives that drive
founders to grow their own businesses.
But even if the government were to disband party cells and instead redouble its
efforts to encourage breakthrough innovation, there remains an even stronger disincentive: the economic realities of the markets in which Chinese companies operate.
Why go to the trouble to pioneer innovative
offerings when the rewards and growth
prospects for incremental improvements
are so vast, both at home and abroad?
The Communist Party requires a representative in
every company with more than
50 employees.
Consider the B2B portal Alibaba, which
in 2001 was so shaky that we feared it would
go bankrupt. But by creatively adapting foreign technologies to the needs of developing markets, Alibab H