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BLOG: China Repo-man disconnect

Greg Au-Yeung | May 24, 2011
During a recent broadcast on a local radio station in Shanghai, a caller is desperately seeking help from the radio host as his wife has run away with someone she met over the internet.

The 2010 Hollywood production "Repo Men" is a sci-fi film that portrays a future of corporations selling artificial organs to patients who need to pay by installments. For those who fail to pay the bills, medical corporations will send "organ collectors" called Repo Men to reclaim their "property". In one of the scenes, the lead actor Forest Whitaker expresses his strong sense of the law to Jude Law, "It is the rules that keep the world together, and people abiding by the terms of the deals that they signed themselves. But more important than the rules is the enforcement".

During a recent broadcast on a local radio station in Shanghai, a caller is desperately seeking help from the radio host as his wife has run away with someone she met over the internet. The host asks, "Shouldn't you be calling the police instead?" To me, this demonstrates two points: the caller did not trust the legal system, or the legal system did not help the caller, or both. In order for people to trust the law, it is important to have a set of rules that are consistently applies and enforced.

Governance gap

Today's China faces many challenges, including an "out-of-synch syndrome" due to the nation's fast-paced development.

With the incredible speed of change in the current business environment, corporations are very often stuck in focusing only on growth and profits without thinking that the internal policies, procedures, staff, or even technology may also need to be overhauled. This is where policy (law) and execution (enforcement) come into play, with committees (checks and balances) set up to ensure that they are implemented in accordance with the rules.

Mainland corporations are in general people-driven rather than policy-driven. On top of that many firms in China are still state-owned (or state-influenced), where senior positions are assigned by the government.

This distortion tends to have an impact on the firm's mission. Western firms are in the profits-generating business, accountable to the shareholders, but with mainland firms, it may not be that straightforward. With such congenital disadvantages, this explains why many large firms in China do not provide quality service. For example, China Telecom, dominates the mainland market in internet services, is notorious for their bureaucratic and inconsistent service. Officially, to apply for a leased line would take 30 days. However, this can be shortened to within 7 days, depending on who you know.

Learn from failure

Even though the Western governance model may fail from time to time, as with Enron, Barings etc. But with greater disclosure after each crisis, Western governments and corporations are forced to change the rules, reshuffle the players, and make corrective adjustments. In China, what is seriously lacking for many corporations is strong governance and discipline that ensure good execution.

Finally, apart from aligning the corporate mission with shareholder value, every mainland firm needs to establish a corporate culture that is truly service-oriented. One good example is Ctrip [4], a Shanghai-based travel agent (market capitalization: $6.5b; listing: NASDAQ), the world's largest travel service center, with over 7,000 call center staff covering 138 countries and destinations. Ctrip has a clear and simple mission statement that successfully communicates with the workforce that helps to convert it into reality. It is the execution of policy that really separates the wheat from the chaff. While China assumes an ever greater role in the politics and business spheres we have to remind ourselves this is still very much a "developing" country.

Greg Au-Yeung is currently CIO, Partner of VantAsia (previously AIG), a privately invested financial institution that provides consumer finance credit facility to retail customers in China. Email him at: gauyeung@hotmail.com

 

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