Jack Perkowski has already achieved literary notoriety among China hands as one of the presumed protagonists in Tim Clissold’s book Mr China. A 20-year veteran of Wall Street, Perkowski began his second career in the early 1990s by moving to China and founding auto components firm ASIMCO Technologies. He has now distilled his years of experience in his own book entitled Managing the Dragon: How I’m Building a Billion Dollar Business in China (reviewed on page 63). He spoke to CHINA ECONOMIC REVIEW about his book, China’s management gap and ASIMCO’s future.
Q: What made you decide to write a book?
A: I’ve had it in the back of my mind for some time, but because everyone thinks they should write a book, I didn’t take the idea of writing one too seriously. Then I got to know Tom Friedman (New York Times columnist and author of The World Is Flat) and he said to me, “You know, Jack, there’s a book in you.” This gave me the confidence to start the project. Also, with the Olympics coming, China is in the news more than ever before. The country is at an inflection point and the environment is changing dramatically. It has never been more important for businessmen and others to try and understand China. My experience has been unique, and the things that I’ve learned over the past 15 years are particularly relevant to what’s happening in the country today.
Q: How did you feel about your portrayal in Mr China?
A: Real names weren’t used in Mr China, so the book falls somewhere in between fiction and non-fiction. Putting that aside, I suppose that I came across as a cowboy from the US who didn’t know anything about the country and made rash decisions. That is not an accurate portrayal. I founded ASIMCO in 1994 having spent several years learning about the industry. The company was backed by a major investment bank and a major money management firm and so every significant action we took was vetted by investment bankers and lawyers in New York and Los Angeles. I counted on Tim [Clissold] and others that had more experience in China to understand how to operate in China. My role was to put together the capital and the institutional infrastructure. I quickly learned that no one had the answers as far as China was concerned, so I had to learn for myself.
Q: Your book is entitled Managing the Dragon. What have you learned about managing your workforce here?
A: The number one lesson that I have learned is that to have any hope of success in China, you have to identify, develop and empower a local management team. Many companies say they have Chinese managers, but what are these managers empowered to do? Every one of ASIMCO’s factories in China is run by a mainland Chinese manager. In fact our whole company in China has only a half a dozen non-Chinese.
Q: Why is this so important?
A: There are two markets here. The first is the foreign/local market that is characterized by higher technology and higher price. In that segment foreign-invested companies compete with the best of the Chinese local companies. But there’s a much bigger market that consists almost entirely of Chinese competitors and is characterized by lower technology and lower price. Over the next 10 years or so, the purely local market will merge with the foreign/local market from in terms of technologically and quality. However, companies that have been working in the purely local market will have lower cost structures and will be more price competitive than those in the foreign/local market. Mainland Chinese managers implicitly understand this local market.
Q: How does one “empower” local management?
A: You have to trust your managers enough to turn the keys over to them. You have to say, “You run the company, it’s yours, I will give you the resources, but it’s your decision to make.”
Q: What is your view on China’s current “management gap”?
A: Before 1978, all companies in China were operating in a centrally planned economy: The manager was given capital and labor, told how many of a product to make, and then turned that product over to a state-run distribution system. As a result, the manager never saw the marketplace. Individuals and companies that grew up under that system tend to be very bureaucratic. In 1978 Deng Xiaoping took off the economic handcuffs but there were no capital markets or legal system to constrain the entrepreneurialism. So, in China, managers tend to be either highly bureaucratic or very entrepreneurial, when the people you really want are somewhere in between.
Q: How long will it take to resolve this issue?
A: I think it will still be a big problem 10 years from now but it’ll work itself out over time. Just as the Japanese developed their own management systems that have become world leading, eventually China will do the same.
Q: What should foreign firms do in the interim?
A: It takes trial and error to identify what managers work best in your organization. What must be understood is that China isn’t like another country you expand into, it’s too big. So companies have to reorient the way they think about China and the way in which they integrate their China operations into their global strategy. American auto parts companies that come to China tend to put their offices in Shanghai. Why? Because General Motors is there. And so you have the American manager in Shanghai having lunch with the same people he did back in the US, except now it’s in China. If that is the case, then I would argue that these companies are only in China on a superficial level, relying on expatriate managers to run their business. Companies need to diversify behind these tier-one cities and penetrate the local market, which is always going to be the biggest and it’s also where the costs are lowest.
Q: What sectors do you see as sustaining long-term growth in China?
A: Any consumer product, starting with automobiles, will do very well. The buying power in China is rising every day, and the consumer will become more involved in the economy. The services sector is also going to be huge. Industries like healthcare and retail and wholesale distribution will become very interesting.
Q: The title of your book says you’re building a US$1 billion business here. How close are you to that goal?
A: We’re about halfway there now. We just did a comprehensive five-year plan and we’ll be there within that period just through the organic growth of our existing businesses. Given the knowledge we have, however, I’m looking at different ways of expanding into new areas. If some of these other ideas develop, we will reach the US$1 billion mark a lot faster.